{"id":2770,"date":"2021-10-21T07:51:44","date_gmt":"2021-10-21T07:51:44","guid":{"rendered":"https:\/\/www.paytmmoney.com\/blog\/?p=2770"},"modified":"2021-10-21T09:59:24","modified_gmt":"2021-10-21T09:59:24","slug":"what-is-open-interest-why-important","status":"publish","type":"post","link":"https:\/\/www.paytmmoney.com\/blog\/what-is-open-interest-why-important\/","title":{"rendered":"What Is Open Interest &#038; Why Is It Important?"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">So, we recently launched the Open Interest Analysis feature in our F&amp;O Dashboard. Check it out here &#8211; <\/span><a href=\"https:\/\/www.paytmmoney.com\/stocks\/fno\/dashboard\"><span style=\"font-weight: 400;\">Paytm Money F&amp;O Dashboard<\/span><\/a><span style=\"font-weight: 400;\">.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Open interest is said to be a very powerful data point in futures and options. Let\u2019s explore what it is and why traders love it.\u00a0<\/span><\/p>\n<h2><b>What Is Open Interest (OI)?<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">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 \u201copen\u201d until the counterparty closes it.<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">If a buyer and seller initiate a new position on the contract, OI rises by 1.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">If they both exit a contract position on a trade, then OI falls by 1.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">If a buyer or seller passes off their current position to a new buyer or seller, then OI remains unchanged.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Increasing open interest represents additional money coming into the market while decreasing open interest shows money flowing away.<\/span><\/li>\n<\/ul>\n<h2><b>What Does High Open Interest of Call and Put Indicate?<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">These indicate the level at which traders have built positions expecting the market to either go up or down.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">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.<\/span><\/p>\n<h2><b>Why Is Open Interest Important?<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">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.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Note &#8211; OI is always seen from the seller&#8217;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.<\/span><\/p>\n<h3><b>How To Use OI To Understand Support &amp; Resistance on Paytm Money App?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">Let\u2019s understand with the example<\/span><\/p>\n<p><img decoding=\"async\" class=\"aligncenter size-large wp-image-2774\" src=\"https:\/\/paytmmoney.wpengine.com\/wp-content\/uploads\/2021\/10\/open-interest-to-understand-support-resistance-paytm-money-621x1024.png\" alt=\"open interest to understand support &amp; resistance paytm money\" width=\"621\" height=\"1024\" srcset=\"https:\/\/www.paytmmoney.com\/blog\/wp-content\/uploads\/2021\/10\/open-interest-to-understand-support-resistance-paytm-money-621x1024.png 621w, https:\/\/www.paytmmoney.com\/blog\/wp-content\/uploads\/2021\/10\/open-interest-to-understand-support-resistance-paytm-money-182x300.png 182w, https:\/\/www.paytmmoney.com\/blog\/wp-content\/uploads\/2021\/10\/open-interest-to-understand-support-resistance-paytm-money.png 655w\" sizes=\"(max-width: 621px) 100vw, 621px\" \/><\/p>\n<p><span style=\"font-weight: 400;\">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.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">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.<\/span><\/p>\n<h3><b>Outstanding Open Interest and Change In Open Interest on Paytm Money App<\/b><\/h3>\n<p><img decoding=\"async\" class=\"aligncenter size-large wp-image-2775\" src=\"https:\/\/paytmmoney.wpengine.com\/wp-content\/uploads\/2021\/10\/open-interest-analysis-paytm-money-1024x1005.png\" alt=\"open interest analysis paytm money\" width=\"1024\" height=\"1005\" srcset=\"https:\/\/www.paytmmoney.com\/blog\/wp-content\/uploads\/2021\/10\/open-interest-analysis-paytm-money-1024x1005.png 1024w, https:\/\/www.paytmmoney.com\/blog\/wp-content\/uploads\/2021\/10\/open-interest-analysis-paytm-money-300x295.png 300w, https:\/\/www.paytmmoney.com\/blog\/wp-content\/uploads\/2021\/10\/open-interest-analysis-paytm-money-768x754.png 768w, https:\/\/www.paytmmoney.com\/blog\/wp-content\/uploads\/2021\/10\/open-interest-analysis-paytm-money.png 1100w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/p>\n<p><span style=\"font-weight: 400;\">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.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">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.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">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.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Check out the <a href=\"https:\/\/www.paytmmoney.com\/blog\/new-fo-dashboard-with-7-added-features\/\">detailed blog on F&amp;O Dashboard\u2019s 7 new features including Option Chain<\/a><\/span><\/p>\n<p><i><span style=\"font-weight: 400;\">Source for Open Interest data on Paytm Money &#8211; Heckyl Technologies Private Limited<\/span><\/i><\/p>\n<p><span style=\"font-weight: 400;\">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 \u2013 INZ000240532. NSE (90165), BSE(6707) Regd Office: 136, 1st Floor, Devika Tower, Nehru Place, Delhi \u2013 110019.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Refer <\/span><a href=\"https:\/\/www.paytmmoney.com\/stocks\/policies\/terms#fno-dashboard\"><span style=\"font-weight: 400;\">https:\/\/www.paytmmoney.com\/stocks\/policies\/terms#fno-dashboard<\/span><\/a><span style=\"font-weight: 400;\"> for further information.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>So, we recently launched the Open Interest Analysis feature in our F&amp;O Dashboard. Check it out here &#8211; Paytm Money F&amp;O Dashboard. Open interest is said to be a very powerful data point in futures and options. Let\u2019s explore what it is and why traders love it.\u00a0 What Is Open Interest (OI)? Open Interest tells<a href=\"https:\/\/www.paytmmoney.com\/blog\/what-is-open-interest-why-important\/\">Continue reading <span class=\"sr-only\">&#8220;What Is Open Interest &#038; Why Is It Important?&#8221;<\/span><\/a><\/p>\n","protected":false},"author":21,"featured_media":2773,"comment_status":"open","ping_status":"open","sticky":false,"template":"single-classic-ns.php","format":"standard","meta":{"footnotes":""},"categories":[16],"tags":[],"class_list":["post-2770","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-fno"],"_links":{"self":[{"href":"https:\/\/www.paytmmoney.com\/blog\/wp-json\/wp\/v2\/posts\/2770","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.paytmmoney.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.paytmmoney.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.paytmmoney.com\/blog\/wp-json\/wp\/v2\/users\/21"}],"replies":[{"embeddable":true,"href":"https:\/\/www.paytmmoney.com\/blog\/wp-json\/wp\/v2\/comments?post=2770"}],"version-history":[{"count":0,"href":"https:\/\/www.paytmmoney.com\/blog\/wp-json\/wp\/v2\/posts\/2770\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.paytmmoney.com\/blog\/wp-json\/wp\/v2\/media\/2773"}],"wp:attachment":[{"href":"https:\/\/www.paytmmoney.com\/blog\/wp-json\/wp\/v2\/media?parent=2770"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.paytmmoney.com\/blog\/wp-json\/wp\/v2\/categories?post=2770"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.paytmmoney.com\/blog\/wp-json\/wp\/v2\/tags?post=2770"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}