What is Open Interest?

Quotes with Resistance & Support

Market Information

This article was posted on Jun 11, 2008

Meaning

Open Interest also know as OI, is the total number of options and futures contracts that are not closed on a particular day. As you might be aware of volume in a particular stock in equity market, option trading involves the creation of a new option contract when a trade is placed. Open interest will tell you the total number of option contracts that are currently open.

Open Interest is mostly used to confirm a trend for a particular futures contract, For eg, lets look at Reliance 1000 May CALL, the open interest might tell us that there have been 5 options open in the month of May, a trader might then wonder does this refer to the number of contracts bought or sold.

Working
When a trader buy’s or sell’s an option, the transaction needs to be entered as either an opening or a closing transaction. If he buy’s 5 RELIANCE May 1000 CALL, he is buying the calls to ‘open’, i.e he is opening his position in a futures contract, which causes the Open interest to rise by 5, and then after sometime(within) the month he decides to sell his contract i.e close his position in a particular contract, then he is causing the open interest to go down by 5.

Open interest applies primarily to the futures market, it helps the measure the flow of money into the futures Market. For each seller of a futures contract (eg RELIANCE 1000 CALL) there must be a buyer of that contract. Thus a seller and a buyer combine to create only one contract.

A rise in open interest in a futures contract along with its price indicates bullishness, which means investors are creating long positions and vice versa.

The open interest position that is reported each day represents the increase or decrease in the number of contracts for that day, and it is shown as a positive or negative number.

Advantages of monitoring Open Interest
Changes in the Open Interst as mentioned earlier can help a trader interpret the future trend of a particular contract.

Open Interest RISING -> Indicates that the present trend (up, down, flat) will continue

Open Interest FALLING-> Indicates that the prest trend(up, down, flat) is likely to change or is coming to and end

Contract Price	Open Interest (%)	Future Trend(predicts)
Rising	Rising	The Contract is likely to trade strong in the coming days
Rising	Falling	The Contract is likely to see some downside in the coming days
Falling	Rising	The Contract should not be entered as of now
Falling	Falling	The Contract can be entered, as its likely to go up

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21 Responses

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HARIPRASAD NETHA Says:
December 29th, 2008
Posted at: 12:08 am
thank u very much for immediate response......
and ....
i am giving one example:-
satyam computers (600)...ca-150-jan-open interest...520,000....no.of contracts ...816......?
could u please calculate the no.of shares that r at in the end of the market.....
CB Says:
December 29th, 2008
Posted at: 9:41 am
Hi HARIPRASAD NETHA, I am not sure about that..
pankaj Says:
February 12th, 2010
Posted at: 6:50 pm
hi,happy Mahashivratri,can u tell me ,where I see (stock) future roll over,canu give me any site address.thanks u.
ravi Says:
April 27th, 2010
Posted at: 8:40 pm
HI CB/KARTIK CAN YOU TELL ME WHICH STOCK HAS STRONG ROLL-OVER FOR THE MONTH OF MAY
Kris Says:
July 9th, 2010
Posted at: 6:24 pm
Dear CB,
This is amazing information. Thank you for this. I have a few queries though, appreciate your response.
1. If Contract price is rising and the Open Interest is reducing, then will it be a good idea to go short on the stock?
2. Is there any site that gives the trend chart of the Open Interests, please do let me know.
3. Is the changes in OI to be noticed intra-day or over a period of few days/weeks/months?
Thanks,
Kris
ZAINY Says:
March 13th, 2011
Posted at: 4:16 pm
thanks gitanjali..ur link gave a clear understanding of OI