You have to Buy and Sell Futures and Options Monthly. For bank Nifty it is also weekly. When a person buys a derivative then but does not sell it then the open interest is 1. The term open interest signifies a number of derivative contracts open in the market. Check our bank nifty option tips for today and make money on a daily basis.
A contract is open if it is Bought only or Sold only. That is you have Bought a contract but have not sold it. You can also sell a contract but not buy it. In both conditions contract is open and open interest increases.
The contract is closed if it is bought and sold. So open interest at a time shows the number of contracts open or sold at a period of time.
What is Long?
A long or long position is bullish. It means the person is expecting the stock prices to go higher. So they are buying the stock first with a view to sell it later.
What is Short?
The short position is bearish. It means the person is expecting the stock price to go lower. So they sell the stock first with a view to buy it later.
Understanding Long and Short Positions
For Long position, People buy at low prices and sell at high prices to make a profit. The concept is the same for Short as well. People are selling at a high price and will buy at a lower price. The sell action and buy action occur at different points. This is the only difference.
For Short sell occurs at first high price and Buy occurs last at low price. The Sell occurs first and then Buy. For Long Buy occurs first at low price and Sell occurs last at high price. The Buy occurs first and sell occurs.
Understanding this basic difference is key to next part of article.
Long Buildup
Long buildup means more people are expecting the prices to go up and creating Long positions. You can simply look at Price and Open Interest to get an idea. If the price and Open Interest goes up then it is Long buildup.
This signifies more traders are expecting the prices to go up.
Short Buildup
Short buildup means more people are expecting the prices to go down and creating Short positions. You can simply look at Price and Open Interest to get an idea. If the price goes down and Open Interest goes up then it is Short buildup.
This signifies more traders are expecting the prices to go down.
Long Liquidation/ Long Unwinding
Futures and Options are one month affair as mentioned above.The concept remains the same. People who have Long positions will have to sell the positions.
The open interest will decrease if Long positions are sold off. The price will decrease and Open interest will also decrease. This signifies Long Liquidation or Long unwinding.
Short Covering
If you understood concept of Long Liquidation then it is similar to above one. People having short position will have to Buy the positions. The open interest will decrease if the short positions are covered. The price will increase and open interest will decrease. This signifies Short covering.
Note short covering causes the prices to go up.
Conclusion
You can use above interpretation with Nifty Open Interest graph to decide whether to Buy Call option or Put option.
The Long Buildup and Short Covering at a particular price shows price will go up. In this case you can buy the call option.
The Long liquidation and short buildup shows the price will go down. In this case you can buy the Put option.
Not this is the strategy looking at the Open Interest. You should combine this with Global market condition and Technical to make it loss proof.
Open interest
Introduction
Open interest is a measure of the total number of shares that have been bought and sold by investors. It's calculated by taking the total number of shares outstanding and subtracting from it the number held by brokers or institutions. The open interest can be used to see how much activity there is on an exchange, but it doesn't always give a clear picture; you need to consider it in light of other indicators.
How is open interest calculated?
Open interest is the number of open contracts at a given point in time. It's calculated by taking the total number of open contracts and subtracting the number of closed contracts. The result is then divided by two, because there are two actions possible for options: buying or selling them. This can be done with put and call options; however, it's also used to calculate other types of derivatives like futures contracts or currencies on derivatives exchanges such as CME Group Inc., Deutsche Boerse AG (DB1), Euronext NV (ERX) . . .
Is open interest an indicator of a trend?
Open interest is not a good indicator of trend direction.
Open interest can fluctuate for many reasons, including changes in the underlying price of the asset and changes in market liquidity. For example, if you have an option with 100 contracts that expire on September 15th, but there’s only 30 days until expiration on September 30th when open interest reaches its highest number (100), then you may see this as an indication that there is no longer any bearish pressure on your position—even though there may still be plenty of traders who want to sell their holdings before expiration!
What is an open interest put call ratio?
The open interest put call ratio is the number of contracts outstanding (puts and calls) divided by the total number of contracts traded. A high OIPC indicates that investors are buying more puts than they're selling calls, which means they believe that the underlying stock will fall in price.
The OIPC can be used to determine whether market participants are betting that a particular stock will rise or fall, based on its current price. If there's more buying activity for calls than selling action for puts, it means traders feel bullish about the potential for growth; conversely, if there's more selling activity than buying action for both puts and calls—that is, if there are positive open interest ratios—then investors may be bearish about future performance potentials.
Is a high open interest good or bad?
If a stock has a high open interest, it means there are many buyers and sellers of the same security. This can be a sign that there is more demand than supply and therefore, investors will have to pay more than usual for shares.
If you’re looking at high open interest on your chart and wondering what it means, consider the following:
A large number of buyers indicates that investors want to buy this security (or they would have already done so). They may also be waiting for news events or other developments that could drive up the price further in their favor. In either case, there are plenty of people who want to buy before anyone else does—and those who already own shares want to sell them off quickly before they lose value too much!
Open interest doesn't always give a clear picture; you need to consider it in the light of other indicators.
Open interest is a useful indicator, but it's not the only one. When you're looking at your open positions and comparing them to market prices, you should also consider other indicators like volume and volatility. Volume can give you an idea of how much liquidity there is in an asset; if there aren't any buyers or sellers trading around the price, then it will show up as low volume. Volatility tells us what kind of movement we might expect from our trades: large swings could mean that traders are nervous about their positions; small movements may indicate that they're confident enough in their decision-making process (or afraid).
When deciding whether or not to enter new trades based on changes in open interest levels, remember that this isn't always going to be an accurate reflection of what's going on inside markets—and if something does happen unexpectedly (for example because some big investors decide they want out), these rules won't necessarily protect against losses caused by unexpected events happening outside our control!
Conclusion
Open interest is an important indicator, but it's not the only one you need to consider. You need to consider other indicators such as price and volume in order to get a better idea of what's going on in the market. Make use of our bank nifty option put call ratio and be on the right side of the market.
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