Open Interest Explained: How Options Traders Read Market Sentiment

Open interest is a core concept in derivatives markets. In Indian stock trading, it explains how many contracts are active at any time. This article explains open interest using factual market mechanics. It focuses on index and stock derivatives traded in India.

What open interest means

Open interest is the total number of outstanding derivative contracts. These contracts are open and not yet settled. Settlement can happen through expiry, exercise, or position closure. Each open contract has a buyer and a seller. When both open a new position, open interest increases. When positions are closed or expire, open interest falls. 

This measure applies to futures and options. It does not apply to equity delivery trades.

Full form of OI in stock markets

OI stands for Open Interest. The term is used across futures and options markets. It shows how many contracts remain open at a given time. Trading platforms and exchange websites display open interest for every contract. In options, it is shown strike-wise in the options chain.

Open interest versus trading volume

Open interest and trading volume measure different things.

• Trading volume counts contracts traded during the day
• Open interest counts contracts that remain open after trades

Volume resets daily. Open interest carries forward until contracts are closed or expire.

Why the difference matters

A contract traded today may increase, reduce, or not change open interest. This depends on whether the trade opens or closes positions. Because of this, open interest gives a structural view of market positioning. Volume shows activity. Open interest shows commitment.

How open interest changes

Open interest changes based on how trades are created or closed.

• New buyer and new seller → open interest rises
• Existing buyer and existing seller close positions → open interest falls
• One new position and one closing position → open interest stays the same

This logic applies to both futures and options contracts.

Open interest in options trading

In options markets, open interest is tracked for each strike price. Calls and puts have separate open interest values.

The options chain shows:

• Call option open interest
• Put option open interest
• Changes in open interest during the day

These values reflect how market participants are positioned at each strike.

Call option open interest

Call option data shows how many call contracts remain open at a strike price.

High call open interest at a strike often indicates heavy participation at that level. Many of these positions may be created by option writers.

In index options like NIFTY or Bank Nifty, the strike with the highest call open interest is often observed as a resistance area in the near term.

Put option open interest

Put option data shows open contracts for put options at each strike.

High put open interest often reflects strong positioning at that strike. This level is commonly observed as a support area during the current series.

These interpretations are based on positioning, not certainty. Levels can change when positions unwind or roll over.

Reading open interest with price movement

Open interest is often analysed along with price movement.

Common observed patterns include:

• Rising price with rising open interest
• Rising price with falling open interest
• Falling price with rising open interest
• Falling price with falling open interest

Each combination reflects different position changes in the market. Open interest alone does not explain direction. It shows how participation changes with price.

Trading volume and open interest together

Trading volume adds context to open interest data.

• High volume with stable open interest suggests position transfer
• High volume with rising open interest suggests new participation
• Low volume with falling open interest suggests position exit

Together, these measures explain activity and structure in the market.

Put–Call Ratio based on open interest

The Put–Call Ratio (PCR) compares total put open interest with total call open interest.

PCR = Total Put Open Interest / Total Call Open Interest

This ratio reflects how puts and calls are distributed across the market.

Moderate values are common during normal market conditions. Extreme values show heavy skew in positioning.

Institutional participation and open interest

Indian exchanges publish client-wise derivatives data. This shows open interest held by:

• Foreign Institutional Investors
• Domestic Institutional Investors
• Proprietary traders
• Retail participants

These figures show how positions are distributed across participant categories. Large changes in open interest at specific strikes often reflect institutional activity. These strikes tend to have high liquidity.

Liquidity and strike concentration

High open interest at a strike usually means high liquidity. Such strikes often become key trading zones. Price movement through these levels may require strong participation or new information.

This is why open interest is tracked daily in index options.

Open interest and contract rollover

As expiry approaches, positions may be closed or rolled into the next series.

• Closing reduces open interest in the current contract
• Rolling shifts open interest to the next expiry

Rollover activity explains sharp changes in open interest near expiry.

Limitations of open interest

Open interest reflects positioning, not intent.

It does not show:

• Whether positions are hedged
• The holding period of participants
• The reason behind position creation

Because of this, open interest is used with price and volume data.

Summary of open interest usage

Open interest explains where derivative positions exist in the market. It helps track participation levels, liquidity, and strike concentration. In Indian futures and options markets, it is a core data point alongside price and trading volume.

Understanding open interest sets the foundation for analysing how option prices behave. Once market positioning is clear, the next layer of analysis focuses on how option values respond to changes in price, time, volatility, and interest rates. This transition leads naturally into the study of option Greeks, which quantify these sensitivities in a structured way.

Frequently Asked Questions

What is open interest in stock trading?

Open interest in stock trading refers to the number of outstanding derivative contracts that remain open. These contracts are not settled or closed. It applies to futures and options traded on Indian exchanges and reflects how many positions are active at a given time.

What is the full form of OI?

The full form of OI is Open Interest. It is a standard term used in derivatives markets. It shows the total number of active contracts that exist in the market for a specific futures or options contract.

How is open interest different from trading volume?

Trading volume measures how many contracts are traded during a session. Open interest measures how many contracts remain open after trades. Volume resets daily, while open interest continues until positions are closed or expire.

What does high call option open interest indicate?

High call option open interest indicates heavy participation at a specific strike price. It often reflects strong positioning at that level. In index options, such strikes are commonly observed as near-term resistance areas.

Does open interest predict market direction?

Open interest does not predict direction by itself. It shows how participation changes as prices move. Traders combine open interest with price and volume data to understand market structure and positioning.