Saturday, February 22

Understanding Open Interest in Options

Many traders have been asking me question on my write up of FII Data analysis, Keeping all the question in mind i have prepared a cheat sheet which will help you in understanding my data analysis with more clarity.
1. What do you mean by Open Interest (OI) in futures and options? 
When there is trade between a buyer and seller, a contract opens and all such open contracts are together called as open interest. So if Trader A have bought 1 lot of Nifty Futures  expecting it to go up and Trader B have sold 1 lot expecting it to go down, that makes it 1 open contract and hence the open interest of 1.
2. How would you read  when I write  “Nifty futures went down with a huge addition of OI?” 
OI will go up when more people start participating or existing people start adding positions. According to the OI theory, typically when a market is going in

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