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
