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FUTURES & OPTIONS

What Is Open Interest & Why Is
It Important?
October 21, 2021 
What Is Open Interest & Why Is It Important?

So, we recently launched the Open Interest Analysis feature in our

F&O Dashboard. Check it out here – Paytm Money F&O Dashboard.

Open interest is said to be a very powerful data point in futures and

options. Let’s explore what it is and why traders love it. 

What Is Open Interest (OI)?

Open Interest tells us how many contracts are open and live i.e.
outstanding in the market due to delivery/settlement or trader
discretion for this call. The contract is considered “open” until the
counterparty closes it.

 If a buyer and seller initiate a new position on the contract, OI rises by 1.

 If they both exit a contract position on a trade, then OI falls by 1.

 If a buyer or seller passes off their current position to a new buyer or seller,

then OI remains unchanged.

 Increasing open interest represents additional money coming into the market

while decreasing open interest shows money flowing away.

What Does High Open Interest of Call and Put Indicate?

These indicate the level at which traders have built positions

expecting the market to either go up or down.

A high OI build-up for a call option at a particular strike implies a

resistance at that strike price. A high OI build up for a put option at
a particular strike implies support at that price.
Why Is Open Interest Important?

By analysing OI carefully, traders can understand where the smart

money is betting. You can easily gauge the short term support and
resistance for the market. The highest PUT option OI strike will be
the support and highest CALL OI Strike will be the resistance for
the market.

Note – OI is always seen from the seller’s perspective because

selling of the option needs more money (margin money) and has
unlimited risk. It is assumed that sellers have better access to
information, so they are risking their capital. It is assumed that
highest put OI strike has maximum put sellers and highest call OI
strike has maximum call sellers.

How To Use OI To Understand Support & Resistance on Paytm Money App?

Let’s understand with the example

In the above image, the 36,500 strike put has the highest OI among
all the puts and 37,000 strike call has the highest OI among all the
calls.

This means 36,500 put has the highest number of sellers so market
breaching this level is unlikely, so this is the support for that
particular expiry for Bank Nifty. Whereas 37,000 has the highest
call OI, so it will work as a resistance.

Outstanding Open Interest and Change In Open Interest on Paytm Money

App
One buy and one sell transaction in the same contract with the same
expiry creates one open interest. Outstanding open interest is the
total number of options outstanding. Open Interest help us
understand the support and resistance for the underlying. The
change in open interest helps identify the change in market
sentiment and next possible support and resistance.

After identifying the support and resistance on the basis of open

interest, traders can track daily change in the same. If there is any
significant unwinding of open interest in one strike and addition in
another strike (upper or lower), it indicates a change in the market
view of big traders.

For example, a significant open interest unwinding in 36,500 put

which gets added to the 36,000 put means that the market is likely
to come down with 36,000 as a new support level.

Check out the detailed blog on F&O Dashboard’s 7 new features

including Option Chain

Source for Open Interest data on Paytm Money – Heckyl

Technologies Private Limited

Investment in securities market are subject to market risks, read all

the related documents carefully before investing. The securities
quoted are exemplary and are not recommendatory. Such
representations are not indicative of future results. Paytm Money
Ltd SEBI Reg No. Broking – INZ000240532. NSE (90165),
BSE(6707) Regd Office: 136, 1st Floor, Devika Tower, Nehru Place,
Delhi – 110019.

Refer https://www.paytmmoney.com/stocks/policies/terms#fno-
dashboard for further information.

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June 14, 2022
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April 12, 2022

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based Futures
February 18, 2022
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