Thread 🧵⬇️

Open Interest and how to effectively use open interest for our analysis
Let us start with understanding what is Open Interest and why traders are obsessed with OI data. What information we can fetch from the data and why analysing it is important?
Open interest refers to the total outstanding (or open) contracts in a derivative market at any given time. The quantitative value shows the total number of contracts in the market that have yet to be liquidated.
Open Interest (OI) is a number that tells you how many futures (or Options) contracts are currently outstanding (open) in the market.
Remember that there are always 2 sides to a trade – buyer and a seller. Let us say, seller sells 1 contract to the buyer. The buyer is said to be long on the contract and the seller is said to be short on the same contract. The open interest, in this case, is said to be 1.

I am not going into detail about how OI is generated. We will stick to the analysis of OI data for this thread. But just to give you a quick sense of OI generation.

OI Generation

OI increase: When a new buyer and seller enter into a contract
OI decrease: When contracts are closed or exercised
OI Unchanged: When an old seller and a new buyer enter into a contract

Open interest or OI interpretation:
OI should never be looked at in isolation but it should be looked at about the movements in the stock price and also the volumes. There are 4 cases to look at in OI

Image attached
How OI is different from Volume:
1. Open interest information tells us how many contracts are open and live in the market. Volume on the other hand tells us how many trades were executed on a given day.

2. For every 1 buy and 1 sell, the volume adds up to 1 whereas OI depends on new market participation
3. Clearly volumes and open interest are two different; buy seemingly similar sets of information.

4. The volume counter starts from zero at the start of the day and increments as new trades occur. Hence the volume data always increases on an intra-day basis. However, OI is not discrete like volumes, OI stacks up or reduces based on the entry and exit of traders.

Interpretation of Volume with Price
IMP note:

Trading volume in F&O is compared to OI to understand whether the volumes are resulting in the actual creation of fresh OI or not. If volumes are high but OI is not building, it means there is speculative activity with an inadequate focus on building OI position.
Shifting OI is an interesting concept if you are a positional trader. OI by itself may not be too indicative or suggestive. However, shifts in OI typically happen over time and hence such medium to long-term trends are more suggestive.
How to interpret the shifts in open interest or OI. Here is what you need to know about shifts in open interest.
OI shifts give interesting clues for traders and investors to take positions in equities. At least, it acts as a ratifying factor if not as a deciding factor.
OI acts as a lead indicator of long or short interest building up in stock. This is normally quite evident when you combine the same with volumes and price moves.
Expanding OI indicates a widening of the contract exposure and is a safety signal. It gives a degree of comfort that a speculative bubble is not here to bite into your profits.
OI gives a clear indication of stocks bottoming out or stock prices topping out. That is because any major turnaround in the stock, either on the positive side or the negative side is preceded by open interest or OI shifts.
OI analysis is an essential aspect while trading in the futures and options market. It indicates the direction of money flow in the market. Following it along with volume and price data can assure a high probability of success and profitability.
OI aids in the identification of liquid choices available based on the number of outstanding contracts daily. The OI is quite important in determining how liquid a market is. The more OI there is, the more liquid the market is.
Remember, these are just indicative interpretations and you have to work this interpretation by considering more variables like price action, market flow, and broader market conditions. What matters is that OI is an important data point for F&O traders and equity investors.
That's a wrap from OI Analysis!

In the coming weeks, I will be writing on Option OI analysis for trading.

If you enjoyed this thread then
1. Please re-tweet the first tweet and help me reach more learners
2. Follow me on Twitter @kaushikaki
3. YouTube…
If you liked this Thread you may also like my #premarketcapsule sharing analysis on major indices, breadth, and OI analysis every day.

To follow #premarketcapsule join the telegram channel… for free.

• • •

Missing some Tweet in this thread? You can try to force a refresh

Keep Current with Prof Kaushik Akiwatkar

Prof Kaushik Akiwatkar Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!


Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @kaushikaki

Nov 12
“If you are in the right sector at the right time, you can make a lot of money real fast.” – Peter Lynch

In this thread, 🧵⬇️
- we will discuss sector rotation
- how we can spot that with help of @mystockedge
Sector rotation is the movement of money invested in stocks from one industry to another as investors and traders anticipate the next stage of the economic cycle.
@vivbajaj along with @mystockedge team introduced the feature recently to identify Sector Rotation.

Way of spotting the influx and outflux of money from one industry to another. A smart way to beat the market return.
Read 18 tweets
Sep 30
Thread-6 | Pole - High Pole 🧵⬇️

In this thread we will discuss:
1. Pattern construction
2. High Pole
3. How to trade High Pole
Pattern Rules (three requirements)
1. Breakout – DTB or DBS
2. Long Column
3. Price retracing at least 50%

All happening over 4 Columns
Price getting retraced by 50% leads to significant erosion in potential profit and hints at strong vertical price reversals known as ‘A’ or ‘V’ shaped reversal
Read 20 tweets
Sep 27
Thread-5 | Traps Pattern

In this thread we will discuss:
1. Traps
2. Importance of Traps
3. Types of Traps patterns
4. Bear Traps
5. Bull Trap

Traps is getting stuck in a trade that has moved against the entry
When a sell pattern (Double Bottom Sell) occurs immediately after a buy pattern (Double Top Buy), it is a Bull Trap formation.

Similarly, if the Double Top Buy signal is triggered immediately after the Double Bottom Sell signal it is a Bear Trap Formation
Read 14 tweets
Sep 26
#PreMarketCapsule |26th September, Monday | Edition: 43

In the document ⬇️
1. #Nifty Range and Breadth
2. #Banknifty range and Breadth
3. #Sector Breadth
4. #FII Derivative Activity
5. #Summary of the analysis Image
1. Demand Zone 17415 to 17250
2. Initiate short below 17250 only
3. Price trading below TMA is bearish
4. Pullback towards TMA and getting red brick is a good place to go short
#Nifty #nifty50 #NIFTYFUT Image
Read 11 tweets
Sep 23
Triple Top & Triple Bottom Pattern

In this thread we will discuss:
1. What are Multi Column Patterns
2. Importance of this Pattern
3. How to trade this pattern
4. Case Studies and examples

1/17 Image
If you have missed reading Basic Patterns of PnF, I will encourage you to read that first to take the best out of this thread

Triple Top and Triple Bottom is strictly a five-column formation
Read 17 tweets
Sep 13
Box Size for P&F Charts

In this thread we will discuss:
1. Box Value into different slots
2. Pattern formation in each slot
3. Importance of patterns in different box values
1/18 Image
Whenever we decide to plot P&F Charts, determining box values is important. Log box values have simplified the subject and made the patterns and other P&F formations more relevant.
Short-term traders may use a lower box-value while long-term traders can use a higher box-value.

Patterns and other P&F formations appear more frequently on the lower box-values vs higher box values. So, it is recommended that traders use smaller box values.
Read 20 tweets

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Don't want to be a Premium member but still want to support us?

Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal

Or Donate anonymously using crypto!


0xfe58350B80634f60Fa6Dc149a72b4DFbc17D341E copy


3ATGMxNzCUFzxpMCHL5sWSt4DVtS8UqXpi copy

Thank you for your support!

Follow Us on Twitter!