Open Interest & Option Chain Analysis

Topic: Open Interest & Option Chain Analysis

1: What is Open Interest (OI)?

Simple Meaning:
Open Interest means the total number of active option or futures contracts in the market that haven’t been closed yet.

Easy Example:
If you and your friend enter into a new option trade, the open interest is 1. If someone else joins with a new trade, it becomes 2. But if you close your trade, it becomes 1 again.

What It Tells You:

If OI is increasing, more people are joining the market.

If OI is decreasing, traders are exiting their trades.

Combine OI with Price Movement:

Price going up + OI going up = New buying → Bullish

Price going down + OI going up = New selling → Bearish

Price going up + OI going down = Traders exiting shorts → Short covering

Price going down + OI going down = Traders exiting longs → Profit booking

2: What is an Option Chain?

Simple Meaning:
Option Chain is a table that shows all the call and put options for a stock at different strike prices.

What You’ll See in an Option Chain:

Strike Price: The price you agree to buy/sell.

Calls (CE): Right to buy.

Puts (PE): Right to sell.

Open Interest (OI): How many contracts are active.

Volume: How many were traded today.

LTP: Latest price of that option.

3: How to Read Option Chain Like a Pro

1. Spot the Support Levels:

Look for the highest OI on the put (PE) side → Big money sees this as support.

2. Spot the Resistance Levels:

Look for the highest OI on the call (CE) side → Traders think price won't go above this.

3. Track Market Mood:

If more puts are being written (PE OI going up) → Traders are bullish.

If more calls are being written (CE OI going up) → Traders are bearish.

4. PCR (Put Call Ratio):

PCR > 1 → More puts than calls = Bullish

PCR < 1 → More calls than puts = Bearish