For Bank Nifty, as we move towards the expiry, the next month open interest chain becomes more and more relevant. this chart is designed to give a glimpse into bank nifty option chain for next month.
Open Interest analysis and Put call ratio analysis for bank nifty should be included in the trading plan to improve accuracy and get better results.
Next month open interest tells us the sentiment among traders for the next month. Consider a situation when the markets are falling and Put call ratio for the current month is showing bearishness but the next month OI is looking upbeat. For a sharp trader this could provide clues that the bearishness is only for the short term. Or at least a bounce is expected by the majority of traders (option writers).
Here we consider open Interest for options only i.e. Puts and Calls only. We are not considering open interest for futures. This doesn’t imply that open interest analysis of futures is not important. It simply means that we have not included it here.
We have defined open interest on other pages already. But as a quick review: “open interest means the number of net open positions in any strike for calls or puts”. We do not look at a single strike when analysing its implications. we need to look at the complete chart or complete option chain to be able to identify support and resistance levels.
For the sake of simplicity, the strike with highest open interest of Puts would be considered a support level. And the strike with highest open interest of calls would be considered resistance.
Towards expiry, these levels become more and more important. Since all the market participants have this information, they all see and interpret it. The option writers try their best to keep the market in this level. Smart money also takes their clues from this table and trades accordingly.