Explaining Nifty Change in Open Interest
Meaning of “Change in Open Interest”:
1. Change in Open Interest is equal to net increase or decrease in Open Interest for a particular option.
How to interpret “Change in Open Interest”?
1. Nifty Open Interest” or “Nifty Change in Open Interest” are two very reliable indicators to identify the ST direction of the market.
2. When the smart money is bullish, they usually start writing Puts. And when the smart money is bearish, they prefer writing calls.
3. Change in OI” can also be used to identify approximate support and resistance levels. If the OI has increase for 7500PE the most then it will imply that the option writers consider 7500 level as a strong support. On the other hand, if the highest increase in OI is for 7500CE, then it implies that option writers consider 7500 level as a strong resistance level.
4. The Option writers are generally the market participants with deeper pockets compared to option buyers.
6. If the OI increase is low but the volumes are heavily traded for a particular option then it will imply some underlying uncertainty in the camp. e.g. if the 7500PE has highest traded volume but slight increase in OI then 7500 will not act as a good support.