How Open Interest and Option Volume Can Improve Intraday Trade Reliability
Intraday trading remains one of the most dynamic and challenging approaches to the stock market. While it offers advantages such as tighter stop-loss management, efficient capital utilization, and the ability to avoid overnight risks, it also demands precision, speed, and a deep understanding of market behavior.
According to Shubham Agarwal, a market expert, traders can improve their intraday trading success rate by incorporating a two-factor authentication strategy, which evaluates Open Interest (OI) movements and options volume patterns. This approach aims to filter out false market moves and enhance the accuracy of trade setups.
Highlights from Agarwal’s Intraday Strategy
- Intraday trading eliminates overnight gap risks, allowing for better risk management.
- Market volatility makes reliable trade setups crucial—overreactions can lead to false breakouts.
- Open Interest (OI) analysis helps differentiate new market participation from existing trader exits.
- Options volume analysis in At-The-Money (ATM) strikes provides additional confirmation for trade reliability.
- Combining OI movement and options volume increases the probability of successful trades beyond 60%.
Why Intraday Trading Needs Strong Trade Filters
Intraday trading is a race against time, where market participants must make decisions based on real-time price movements. Given the high volatility and frequent market overreactions, identifying whether a price move is genuine or temporary is crucial.
Agarwal highlights that most traders rely on technical analysis or data-driven trade setups, but these alone may not always provide sufficient accuracy. To improve trade reliability, he suggests applying a two-factor authentication system that considers both:
- Open Interest Analysis – To assess whether the price move is driven by fresh entries or exits.
- Options Volume Analysis – To validate whether options traders are expecting a sustained move.
By using these two factors in conjunction, traders can avoid false breakouts and increase the probability of successful trades.
Factor #1: Open Interest (OI) – Tracking Fresh Entries vs. Exits
What is Open Interest (OI)?
OI represents the total number of open contracts in futures or options. Unlike trading volume, which counts every trade, OI increases only when a new buyer and seller enter a contract, and decreases when positions are closed.
Why is OI Important for Intraday Trades?
- OI helps differentiate between new market participation and existing traders exiting their positions.
- A price move with increasing OI indicates fresh buying or selling pressure, confirming a stronger trend.
- A price move with decreasing OI suggests existing traders are closing positions, making the move less reliable.
How to Use OI for Trade Authentication?
Agarwal suggests using OI alongside price movements to verify the legitimacy of a trade.
- For a Buy Trade: OI should increase alongside the price.
- For a Sell Trade: OI should increase while the price declines.
OI-Based Authentication Rules:
- Buy Trade Confirmation: OI Up + Price Up
- Sell Trade Confirmation: OI Up + Price Down
If OI does not support the price movement, the trend may not be sustainable, and traders should be cautious.
Factor #2: Options Volume – Confirming Market Expectations
Options trading activity provides valuable insights into market sentiment, particularly when analyzing volume in At-The-Money (ATM) strike options.
Why Is Options Volume Important?
- Traders often take positions in ATM options when expecting strong price movements.
- A surge in Call option volume suggests bullish expectations.
- A surge in Put option volume signals bearish sentiment.
How to Use Options Volume for Trade Authentication?
Agarwal suggests looking at the ratio of Put-to-Call volumes in ATM strikes to determine market expectations.
- For a Buy Trade: Call volume should be 1.5-2 times the Put volume.
- For a Sell Trade: Put volume should be 1.5-2 times the Call volume.
This ensures that options traders are aligning with the anticipated move in the stock or index, adding an extra layer of confirmation to the trade.
Options Volume-Based Authentication Rules:
- Buy Trade Confirmation: Call Volume is 1.5-2x Put Volume
- Sell Trade Confirmation: Put Volume is 1.5-2x Call Volume
How Combining OI and Options Volume Increases Trade Accuracy
Using both OI analysis and options volume confirmation together improves the reliability of intraday trades.
For example:
- If a stock price rises, and both OI and Call volume confirm the uptrend, the trade is more likely to succeed.
- If a stock price drops, and both OI and Put volume indicate a downtrend, the short position is more reliable.
By ensuring that both factors align, traders can filter out false moves and enhance trade precision.
Final Thoughts: A Smarter Approach to Intraday Trading
Intraday trading, while fast-paced and high-risk, can become significantly more strategic and reliable when incorporating a two-factor authentication process. Shubham Agarwal’s approach of combining Open Interest movements with Options Volume trends helps traders:
- Avoid false breakouts caused by overreactions
- Identify strong trade setups with higher conviction
- Improve win rates beyond 60% in intraday trading
- Optimize capital efficiency and risk management
As market volatility continues, having a robust trade filtering system is essential. By integrating OI and options volume analysis, traders can make smarter and more informed intraday decisions, improving their profitability and consistency in the markets.
