Module 4 Futures Trading

Chapter 12

Open Interest

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M4-Ch12-Title

12.1 – Open Interest and its calculation

Before we conclude this module on “Futures Trading”, we must address one of the questions that is often asked- “What is Open Interest (OI)?”, “How is it different from Volumes?”, and “How can we benefit from the Volumes and Open interest data?” Let me attempt to answer these questions and more in this chapter. After reading this, you will be able to interpret OI data in conjunction with the Volumes to make better decisions while trading. Also, I would suggest you refresh your understanding on Volumes from here.

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 – a buyer and a seller. Let us say the 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.

Let me illustrate OI with an example. Assume the market consists of 5 traders who trade NIFTY futures. We will name them Arjun, Neha, Varun, John, and Vikram. Let us go through their day to day trading activity and observe how open interest varies. Please note, you need to exercise some patience while understanding the flow of events below, else you can quite easily get frustrated!

Lets get started.

Monday: Arjun buys 6 futures contracts and Varun buys 4 futures contracts, while Neha sells all of those 10 contracts. After this transaction, there are 10 contracts in total with 10 on the long side (6 + 4) and another 10 on the short side; hence the open interest is 10.  This is summarized in the table below.

Image 1

Tuesday: Neha wants to get rid of 8 contracts out of the 10 contracts she holds, which she does. John comes into the market and takes on the 8 shorts contracts from her. You must realize that this transaction did not create any new contracts in the market. It was a simple transfer from one person to another. Hence the OI will still stand at 10.  Tuesday’s transaction is summarized in the table below.

Image 2

Wednesday: To the existing 8 short contracts, John wants to add 7 more short positions, while at the same time both Arjun and Varun decide to increase their long position. Hence John sold 3 contracts to Arjun and 2 contracts to Varun. Note, these are 5 new contracts created. Neha decides to close out her open positions. By going long on 2 contracts, she effectively transferred 2 of her short contracts to John and hence Neha holds no more contracts.  The table now looks like this:

Image 3

By the end of Wednesday, there are 15 long (9+6) and 15 short positions in the market, hence OI stands at 15!

Thursday: A big guy named Vikram comes to the market and sells 25 contracts. John decides to liquidate 10 contracts, and hence buys 10 contracts from Vikram, effectively transferring his 10 contracts to Vikram. Arjun adds 10 more contracts from Vikram and finally Varun decides to buy the remaining 5 contracts from Vikram. In summary, 15 new contracts got added to the system.  OI would now stands at 30.

Image 4

Friday: Vikram decides to square off 20 of the 25 contracts he had sold previously.  So he buys 10 contracts each from Arjun and Varun. This means, 20 contracts in system got squared off, hence OI reduces by 20 contracts. The new OI is 30-20 = 10.  The final summary is listed in the table below.

Image 5

So on and so forth; I hope the above discussion is giving you a fair sense of what Open Interest (OI) is all about. The OI information just indicates how many open positions are there in the market. Here is something you should have noticed by now. In the ‘contracts held’ column, if you assign a +ve sign to a long position and a –ve sign to a short position and add up the long and short positions, it always equates to zero.  In fact this is one of the primary reasons derivatives is often termed as a zero sum game!

Have a look at the following snapshot –

Image 6

As of 4th March 2015, OI on Nifty futures is roughly 2.78 Crores. It means that there are 2.78 crore Long Nifty positions and 2.78 crore Short Nifty positions. Also, about 55,255 (or 0.2% over 2.78Crs) new contracts have been added today. OI is very useful in understanding how liquid the market is. Bigger the open interest, more liquid the market is. And hence it will be easier to enter or exit trades at competitive bid / ask rates.

12.2 – OI and Volume interpretation

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 the given day. For every 1 buy and 1 sell, volume adds up to 1. For instance, on a given day, 400 contracts were bought and 400 were sold, then the volume for the day is 400 and not 800. Clearly volumes and open interest are two different; buy seemingly similar set of information. The volume counter starts from zero at the start of the day and increments as and when 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. In fact for the example we have  just discussed, let us summarize the OI and volume information.

Image 7

Notice how OI and volume change on a daily basis. Today’s volume has no implication on tomorrow’s volume. However, it is not true for OI. From a stand-alone perspective both OI and volume numbers are pretty useless. However traders generally associate these numbers with prices to draw an inference about the market.

The following tables summarizes the trader’s perspective with respect to changes in volume and prices –

Price Volume Trader’s Perception
Increase Increase Bullish
Decrease Decrease Bearish trend could probably end, expect reversal
Decrease Increase Bearish
Increase Decrease Bullish trend could probably end, expect reversal

Unlike volumes, the change in Open interest does not really convey any directional view on markets. However it does give a sense of strength between bullish and bearish positions. The following tables summarizes the trader’s perspective with respect to changes in the OI and prices –

Price OI Trader’s Perception
Increase Increase More trades on the long side
Decrease Decrease Longs are covering their position, also called long unwinding
Decrease Increase More trades on the short side
Increase Decrease Shorts are covering their position, also called short covering

Do note, if there is an abnormally high OI backed by a rapid increase or decrease in prices then be cautious. This situation simply means that there is a lot of euphoria and leverage being built up in the market. In situations like this, even a small trigger could lead to a lot of panic in the market.

And with this, I would like to conclude this module on Futures Trading. I hope you enjoyed reading through this module as much as I enjoyed writing it!

On wards to Option Theory now!


Key takeaways from this chapter

  1. Open Interest (OI) is a number that tells you how many contracts are currently outstanding (open) in the market
  2. OI increases when new contracts are added. OI decreases when contracts are squared off
  3. OI does not change when there is transfer of contracts from one party to another
  4. Unlike volumes, OI is continuous data
  5. On a stand along basis OI and Volume information does not convey information, hence it makes sense to always pair it with the price to understand the impact of their respective variation
  6. Abnormally high OI indicates high leverage, beware of such situations.

 

Updated : 24th Aug 2016 – If you use intra day OI information as a critical input for your trading strategy, then you should read this before you trade.

591 comments

  1. jagadeesh says:

    Hi Sir,
    Please correct me if I am wrong. I am a price action day trader. I never used OI data till now. As per me, the trend changes when a valid pivot is broken. Suppose, a trend changing pivot is triggered with a decrease in OI. Does that mean, people are losing confidence in the trend and that makes the trend change more trustworthy?? Or, as the OI is decreasing which means people are not taking any positions in the new trend , hence its better to wait for the confirmation??

  2. Raghavendrachar says:

    Dear Karthik,

    I had bought Nifty 8600 PE 20 lots @ 64, I found that it hit 74 @ 2:36PM when Nifty spot went to 8680.45 and Fut was 8716.25, I waited for another dip as Ididn’t get chance to square off there and I kept sell @ 72.2,but @ 2:54PM Nifty spot was @ 8677 and Fut @ 8714 still 8600PE went down only to 69.90!!!,why? finally I had to take loss @ 52.80.

  3. Vidhyalakshmi says:

    Hi Karthik! Do you know of any good analysis software that offers the option of candles based on volumes (stocks/contracts) traded…as opposed to the usual time-based candles (weekly, daily, hourly)? Are there any plans to offer this on Pi?

  4. Karthik Rangappa says:

    Most s/w including Pi offers something called as ‘Candle volume’ chart which combines candlestick and volumes. I will try and include a chapter based on this sometime soon.

  5. vasanth says:

    Query related to Options:
    Today DLF15MAR140CE traded @ 9.25 & DLF15MAR140PE traded @ 3.30 at around 10:30Hours and the spot price is 145. At the EOD Spot moved to 149.2, CE from 9.2 to 11.6 but put down from 3.3 to 2.25rupees. Eventhough the option is far away from the expiry but why the depreciation in PUT price? Suppose if i used the long straddle strategy chance of profit in both call & puts. Can you clarify?

    • Karthik Rangappa says:

      This depends on the sensitivity of the option’s premium to the directional move in the spot. The 140CE is deep ITM option, whose delta is close to 1, hence the option behaves very similar to spot. We will talk about this and more shortly in options. All these queries will be sorted for you. Request you to kindly stay tuned till then. Thanks.

  6. vasanth says:

    Can you provide the mail id to clarify the trading strategy related queries?

  7. Raj says:

    I want to clarify, you say Increase in price and Increase in OI mean More trades on the long side. How is this possible if there is a seller for every buyer?

    • Karthik Rangappa says:

      As I’ve mentioned on a standalone basis OI information is pretty much useless…it is a perception that when OI increases and the price increases it is considered bullish.

    • Chandra says:

      Yes,
      No. of long & shorts is same. However when both price and OI is increasing it means that the market is dominated by bulls.

  8. Raju Shinde says:

    PLEASE EXPLAIN THESE TERMS HIGHLIGHTED IN BLUE COLOUR. WHAT DOES THIS MEAN?
    THANK YOU.

    • Karthik Rangappa says:

      Raju, all the terms related to volatility will be explained in the Options module…and honestly I really dont understand that cost of carry bit on NSE wbebsite, we even spoke to NSE about it, but I’m yet to understand it clearly. Will keep you posted as soon as I get an answer myself. Thanks.

  9. pravin says:

    how can this be possible? i mean, don’t you think traded quantity (volume) must be at least change in open interest ?????

    • Karthik Rangappa says:

      Pravin – From my observation the real time OI data on NSE is not accurate, its best to check for end of day OI data. Having said that, remember the OI data is a carry forward number and changes each day of the series. Where as the volume is for the day (it only increases as the day progresses, where as OI can change). I have illustrated this in section 12.2 of this chapter.

      • pravin says:

        dear sir,, first of all this snap is taken at the END OF THE DAY (13th march 2015). and what i am trying to say is, on that day 65,60,000 contracts have been squared off.. so, logically that day’s trading volume must be atleast 65,60,000. please explain your opinion. thankyou.

        • Karthik Rangappa says:

          Yes, in fact if you see the traded volumes (expressed in number of contracts) is 7975, which is basically 7975 * 8000 = 6.38Cr shares…which is clearly way higher than the 65,60,0000 shares which were squared off.

  10. sahajyotirmoy says:

    pls explain the cost of carry in details

    • Karthik Rangappa says:

      Cost of carry is simply the interest rate component in the futures pricing formula….expressed as Rf * (X/365).

  11. shubha sharma says:

    such a very good website with the easy language to understand for non finance background ppl!!!! please add up more budget forcast and the process of variance how to preapare with live examples

  12. Rupesh says:

    Great explanation…really nice explanation

  13. Krishnan says:

    Brilliant work Karthik…its really very helpful..when can we see your impressive work in options module…waiting for it…

    • Karthik Rangappa says:

      Thank so much for the kind words. We have already started work on Options module, in fact the first chapter should be uploaded sometime today. Thanks.

  14. t rama says:

    sir, when is option module is uploaded. thanks

  15. NARSIMHA says:

    sir,whats diff between IV of nifty,b.nif,stock optioons &india vix explain detail

    • Karthik Rangappa says:

      IV of an individual instrument is just that – the instrument’s IV or the implied volatility. Will talk about volatility in detail in the options theory module.

  16. Arun Christe says:

    Great Work and Fantastic write up. You have taken so much time in explaining all the possibilities that I have understood on FUTURES trading much better than anyone who has tried to explain the same to be.

    Great Work Once Again

    • Karthik Rangappa says:

      Thanks Arun, maybe after I’m all done writing and explaining I could take a vacation to EU through Christe 🙂

  17. wilson says:

    sir,
    how to trace sell or buy open interest and volume in a future contract ,what is future price discount ,why does it happen?

  18. RamPrabhu says:

    Kathik,

    As a intraday trader what are the charts or data that u watch closely before placing an order .Eg. I used to watch RSI , volumes and Total bid and ask quantity.

    • Karthik Rangappa says:

      In no particular order – Support Resistance, Candlestick patterns, generic dow pattern, overall sentiment in the market, overall sentiment in that particular stock, fundamental news scan, volumes, and moving averages.

  19. Sumeet Nagar says:

    Honestly I have never seen this kind of write up anywhere. Hats off to u guys!!
    Karthik, Now i have covered the first four modules of varsity by finishing the futures module.
    1. Am I good to go for trading in futures using TA checklist?.
    2. Or Do I need to wait for other related modules such as Trading Psychology and Risk Management, Trading Strategies and System to be completed?
    3. Do I need to complete Options module to select a good trade(to select either futures or options trade based on the conditions)?

    • Karthik Rangappa says:

      Nope, you should be good to go. If you have read all the 4 modules then please do not hesitate…its time to validate all that you have learnt. Initiate small and well planned trades…dont rush to put in big trades. Remember every trade has a lesson bundled within…make sure you recognize that lesson and learn from it. The key is to make sure you sustain your capital…dont burn it up by initiating large and reckless trades. If you are new, avoid day trading…try taking positions for 2 -3 days. We have interviewed some of the most successful traders here – http://zerodha.com/z-connect/category/zerodha-60-day-challenge . I would suggest you read this for some great inspiration. Good luck!

  20. the_fool_on_the_hill says:

    The trading quantity can also be disclosed while placing an order. So, if I buy 2500 lots of nifty but don’t disclose any quantity at all (and similarly, the person who sells those 2500 lots also does not disclose any quantity), will either the volume or the OI change?

    • Karthik Rangappa says:

      Nope, the disclosed quantity is only to mask the trade for that particular order….end of day the exchange will take all orders in consideration irrespective of it being disclosed or not.

  21. priya says:

    hi Karthik,
    Can you please suggest me a good book or source to learn about intraday trading strategies and concepts.
    thanks in advance.

  22. pavan says:

    hi karthik

    Regarding security ban, correct me if im wrong, sebi sets ban when open positions go above 95% and only allowed back when it reverts to 80.During ban period is it allowed to take fresh entry(buy/sell)

    Regards,
    pavan

    • Karthik Rangappa says:

      Pavan – everything is correct expect that during the BAN period you cannot initiate a new position…you can only close out the existing position.

  23. Dilip says:

    Sir, iam a pivot high/low breakout trader in Futures only, till today I face big lose but top trader earn from same strategy in zerodha 60 day challenge only but I can’t, so I have doubt about entry and exit by using pivot high/low, suppose in intraday 10 minutes time frame, previous pivot high is broken after 12 o’clock then how can I use open interest and volume to confirm uptrend.
    my doubt is in 10 min pivot breaked candle,
    1. can we have to consider previous day open interest and volume breakout in 10 minutes break candle
    2.else how can I use open interest and volume at 10 min breaked candle,
    3.else how to use pivot H/L breakout efficiently
    please explain with clear picture because I have faced huge loss due to lack of entry and exit criteria

    Thanks in advance

  24. madhu nair says:

    hi Karthik, decrease in OI with a decrease in price is an indication of longs selling which is why the price falls. the interpretation commonly voiced is that, this is bullish. or, a bounce upwards is expected. the longs exit because the r booking profits as they feel the stock might not ride up any further. why bullish then? thanks.

  25. madhu says:

    hey karthik, the price of a stock increases on a day, along with that if we go through the percentage of deliverable trades to the traded volume, we may find it hinges at 30 to 40 %. now, the OI and the price would have increased at the same time. which means it was a trading counter. is that fair? then at times the price is up and the deliverable quantity is 100% but he OI has decreased and the price is up. this indicates short covering. since there is 100 % delivery , most would look to buy as is the norm but, there is short covering too and that means the sentiment is weak at that counter. is that a paradox?

    • Karthik Rangappa says:

      Not sure if we can mix the % deliverable figure with OI…while the former is wrt to spot market, the latter is wrt to Derivatives mkt.

      • madhu says:

        Hi karthik, an increase in OI with an increase in price indicates bullishness. However, doesn’t it also mean that an increase in OI of a particular strike signals the option sellers view that the price might not reach that strike ( since the option seller is more aware.) isn’t this a paradox?

        • Karthik Rangappa says:

          OI is formed only when a new position is created. This means number of contracts bought equals the number of contracts sold. Hence on a stand alone basis OI conveys very little info…therefor we associate price to derive some meaning.

          With respect to options there is a slightly different perspective…like I mentioned earlier this will be discussed in next module in Options Pain chapter.

          • abashlal says:

            Hi Karthik,

            Can you please tell specifically where Madhu’s question has been addressed in options chapter?

            Question was “Hi karthik, an increase in OI with an increase in price indicates bullishness. However, doesn’t it also mean that an increase in OI of a particular strike signals the option sellers view that the price might not reach that strike ( since the option seller is more aware.) isn’t this a paradox?”

          • Karthik Rangappa says:

            Well, the interpretation of ‘OI + Price’ is based on empirical study. You can add in a layer here and check how the OI of ATM options behave as ATM strike reflects the current sentiment in the market.

          • abashlal says:

            Thanks for the response. You wrote “Well, the interpretation of ‘OI + Price’ is based on empirical study. You can add in a layer here and check how the OI of ATM options behave as ATM strike reflects the current sentiment in the market.”

            Can you please let me know the results of the empirical study? If the OI gets added or subtracted from put chain , what does it mean?

          • Karthik Rangappa says:

            Abashlal – Unfortunately I do not have any leads to this. However you can backtest this easily and arrive at a conclusion. Perhaps you could be kind enough to share the results with the rest of us 🙂

            Data providers will give out the historical price, volume , and OI data.

  26. Vivek says:

    Hi Karthik
    Pardon my numerous questions in every module. But I can’t settle unless my mind has grasped everything you have taught. So…
    1) Going through the modules and the queries from the readers I have found mention of Pivot every now and then. Could you please explain what is that.
    2) “Do note, if there is an abnormally high OI backed by a rapid increase or decrease in prices then be cautious. This situation simply means that there is a lot of euphoria and leverage being built up in the market. In situations like this, even a small trigger could lead to a lot of panic in the market.”
    What does leveraging mean in Trading context?

    • Karthik Rangappa says:

      Vivek – please do not hesitate asking questions…this is the only way to enrich this forum!

      1) Pivot levels are techniques used to calculate the Support and resistance level by employing a mathematical formula. Plenty of site give you this formula.

      2) Leverage in this context means very high numbers of futures and options positions. This can be a bit dangerous since all F&O trades are leveraged.

  27. Ankit says:

    Hi Karthik, will u please explain one thing
    Eicher motor Fut 28 Jan showing open interest 0 and vol 25
    What does this mean.?

  28. vasanth says:

    Iam a nifty futures full time scalper from Tamilnadu.
    For Eg: If iam buying 75Lot of nifty futures @8000 and selling @8010, my profit will be 539rupees.The costs shown below for the reference
    Brokerage-40
    SEBI Charges-2.44
    STT-Only on sell side-61
    Turnover Charges-25.61
    Service Tax-9.19
    Stamp Duty-73.17(0.006%)
    Total Cost-211.41
    If iam declaring as the Non-speculative Business with proper balance sheet & the FY15-16 gross profit crosses above 2.5Lakhs
    If so, can I rebate this paid 211.41 rupees/Lot.. Which mean if I done 75000Lots for the entire FY & the tax can be claimed max upto the level of 2.11Lakhs.
    Kindly clarify.

  29. tramadevi says:

    Sir, What is Roll Over. Stocks has different % of roll overs. What does it means. Kindly explain. Thanks

    • Karthik Rangappa says:

      If you are long on Nov Nifty futures…then closing the position on expiry and buying the Dec series is called rollover. The % depends on the current sentiment of the stock.

  30. NEHA says:

    Hi if in the option chain …. call OI data shows 55 lacs and same strike price put shows 75 lacs what is happening call writing or put writing and which way will the market move uptrend or downtrend

  31. sarath says:

    i bit confused with oi, if a stock has 100 oi, then 4 traders enter to the market and create one short position each. so now oi is 104 right? , and after some time these traders exit from their current position so now oi is 100 right ? please correct me if i am wrong?

    • Karthik Rangappa says:

      Yes, as long as the 4 new sellers match with 4 new buys, the OI will goto 104. Once they square off the OI will drop back to 100. OI always captures the net open position in the market.

  32. muditsinghal257 says:

    Hi Karthik, as I could understand from above article, derivatives are zero sum game. So on start of a new future contract after expiry, how can a first buyer of contract initiate long if no sellers are on other side and viceversa. Pl explain.

    • Karthik Rangappa says:

      Its like going to the vegetable market the first thing in the morning…as soon as markets are open ppl will come to buy/sell something or the other…and hence a transaction takes place.

  33. aehsan4004 says:

    are only delivery based futures trade possible in any segment ?

    what if i wish to capture calender spread buy 1 lot of nifty at 8000 in current month and sell it the next month at 8080?

    now i am invested in 1 lot & have locked profit of 80 points per lot which i will earn when i deliver the same lot next month (as per my short contract)

    is doing this alone possible (without being bothered about intraday movements or squaring-off positions) ?

    • Karthik Rangappa says:

      Yes, you can carry forward futures positions overnight.

      When you create a spread like this, the full realization of profits happen upon expiry. This means to say that the position will have to be open throughout the series and therefore you will have to buffer for M2M P&L.

      • aehsan4004 says:

        kindly explain more:-
        1) this can be done in futures itself without bothering about any kind delivery on demat side ?
        2) lets say i wish to do this in CRUDEMINI FUTURES . ( JAN-FEB)
        CRUDEMINI JAN is 2383 & CRUDEMINI FEB is 2455 .
        i wish to capture the spread of 72 points by buy jan & selling feb . (as per calculator i only block 1091 as margin ) , how to execute this i am aware .

        on 19th jan only crude miniJAN will expire ,not the FEB ….. so how should i close or it will be done automatically to gain my 72 point profit and release the initial margin ?

        3) what is perfect time-frame / time-gap before expiry to execute this strategy ?

        thanks

        • Karthik Rangappa says:

          1) Yes, if you are long and short on futures then DEMAT does not come into play

          2) By virtue of cost of carry, the mid month contract will always be priced higher than the current month. This should not be confused for a ‘spread’. However if the spread is more than what should be, then yes you do have an opportunity. For example in case of Crude, if 72 points is what is more than its supposed to be be then you initiate the trade and capture the convergence…which can happen at or before Jan expiry. This also means you will not get full 72 points but a large chunk of it

          3) There is nothing like a perfect time frame for this.

          • aehsan4004 says:

            continuing point 2.

            1) the mid month is going going cheaper than current month in many currency – equity futures …. so in this case can i simply short the expensive one even though is near one and long the cheap one (even though it is far) ?

            2) my idea is to simply lock this “COST OF CARRY” as my profit and keep doing it again & again at the end of every month …. isn’t this a good strategy ?

            3) once again i am aware how to enter an arbitrage , but how to exit it with profit ? you said i will get a chunk of this 72 points not the whole 72 points .

            theoretically i am buying something at 2383 and selling it at 2455 ( with a contract ) so i expect to get full 72 points .
            practically this will not happen , kindly explain why ?

            4) what factors determine the size of spread i will earn & how ?

            5) i am aware about entering an arbitrage and do not know how to exit it ?
            with respect to this case itself , i simply short feb and buy jan ( this is my entry with a margin of 1099) , now when jan contract expires what will happen ? PI will square-off the whole position or i have to do (FULL SQUARE-OFF) myself ?
            if PI just squares-off JAN contract and keeps FEB open then what happens ?

            6) what are the risks involved in this type of strategy ?

          • Karthik Rangappa says:

            1) Yes, you can

            2) Yes, it certainly is

            3) If 72 is the number of points you are expected to get, then this full payoff of 72 is expected on the expiry day. So in the event you square off the position before this, then you will not get full pay off, you will only get a part of it.

            4) Liquidity and execution risk are the prime concerns

            5) Exit is simple – just reverse the positions and you are through :). Once you have reversed you will not have any open positions, so no question of Pi squaring it off on your behalf.

            6) Liquidity and execution risk

          • aehsan4004 says:

            i will hold this position till expiry ( by is it called arbitrage or hedge ? ) & will not square-off on my own .
            generally it would need me 4000 margin to trade 2 lots . but as i have this hedge position i only allocate 1000 margin .

            1) now on expiry PI closes the position my query is will it close just the near month or the whole position ?

            2) if it closes simply current month & i don’t have any extra margin on my account , what will it do for extra required margin ?

            3) kindly explain ” execution risk ” ?

            4) suppose the short month appreciates in price and long month depreciates ( well i take loss in this case , but once again when i entered this position both my buying & selling price are set …… so i should not have any concern about what happens to the script after the orders are filled ) …. kindly comment on this point of view ?

          • Karthik Rangappa says:

            The holding period does not guide the strategy name. For instance you can hold the arbitrage trade till expiry!

            1) Just the near month contract will be closed and you will have to manually close the mid month contract.

            2) If you dont have the stipulated margins, the the position will be closed

            3) If you want to buy something at say 100, but end up buying the same at 101, then the 1% increase in cost of execution is called execution risk. This is important to keep execution risk to minimum in arbitrage strategies since the profits are limited

            4) Yes, the spread expanding in the other way is also a risk (besides execution and liquidity)

  34. Shailey says:

    Karthik,
    Please guide me on day-trading.
    1.How do I select stocks for it?
    2. What should be the look back period for finding S&R levels?
    3. Should I stick to top gainers & losers?
    4. Do midcap-50 stocks prove out to be better than nifty-50 stocks as they show more percentage movement?
    5. What time frame would be better for me? I never scalp.
    I don’t know what’s wrong with my strategy, I trade equity using 5 min – 10 min charts with 21-7 period crossover system. I don’t use technical indicators, I only study price action, volume and candlestick patterns. I never trade before 10AM, if I do however I feel like gambling and pushing myself out of my comfort zone. Should I start using indicators like RSI, MACD and Directional Movement System?

    • Karthik Rangappa says:

      1) I would suggest you concentrate only on Nifty 50 stocks for day trading. Has sufficient liquidity
      2) 6 months and 3 months at least
      3) Not necessary – as I said stick to Nifty 50
      4) Maybe, you can even choose to trade the biggest 5 stocks from Midcap 50. But you will have enough and more opportunities in Nifty 50 itself
      5) My suggestion – try and hold the trades for longer period. Even if it means doing overnight trades.

  35. Deepak says:

    I have sold nifty call option 11000 june 2016 at the rate of 2 rs (150 qty or 2 lots)in MIS and it also executed. There is no seller in this call option, so it is still reflecting in my position and margin amt is also blocked.
    if MIS is selected position has be settled at the end of the day but it is still open.
    How to close the contract position? Kindly help

    • Karthik Rangappa says:

      Well, if there are no buyers then the position will be forced to carry forward and your margins will be blocked till the position is squared off. Also, please do remember – its always dangerous to place intraday orders in contracts which do not have liquidity. This is also called ‘liquidity risk’.

  36. Virochan says:

    Hi Karthik,

    I really appreciate your and entire Zerodha team efforts …….. these VARSITY module is really helping us to understand share market ………..

    I have a question ……. I have checked Marico futures
    for this ( Jan month expiry) open interest is in red with 3.53% ( which means open interest is getting decreased )
    For Next month ( feb month expiry attached in sreenshot ) open interest is shown in green with 400% (( which means open interest is getting increased ) …… please correct me I am wrong.
    Now If how I should check if open interest is on positive side ( stock price is expected to increase ) or on negative side ( stock market is expected to decrease ) , how to understand if I should go long or go short as I can see just increase or decrease in open interest ?

  37. SARAVANA PERUMAL D says:

    Hi Karthik,

    The below highlighted with red box content repeat and table also misplace repeated. Please change the correct content.

    Thanks in advance.

  38. Raja says:

    Hi Karthik,

    How Put Call Ratio is related to Nifty and how Nifty reacts with the increasing or decreasing of Put Call Ratio in the market hours and at the EOD chart, do we have any reading material on this in Varsity. And how it could help in interpreting the nifty trend whether it is bullish or bearish. Please advise. Thanks in advance.

    • Karthik Rangappa says:

      We do not have any material on Put Call ratio on Varsity yet, but will soon put up a chapter on this. Request you to kindly wait for a little longer. Thanks.

  39. nair.nishant.r says:

    Hi Karthik, The initiative of zerodha is just amazing and the knowledge you are spreading is a wonderful gesture. I would like to know more about currency contracts, fx spots and forwards, swaps, corporate actions etc. Is there any chance that you would go for the subjects in future??

    • Karthik Rangappa says:

      We will soon we writing a module on Currency, Commodities, and Interest Rate futures. Request you to stay tuned 🙂

  40. Sushant P says:

    Hi Karthick sir,
    Thank you for the above thorough content. was able to make some good profit today as a beginner in nifty.
    thanks again.

  41. Yugesh says:

    Hello Karthik,
    In options data what would this mean: Number of contracts – 0 / Open Interest -25
    Thanks,
    Yugesh

  42. Ali says:

    Hi Karthik, I want to check live or EOD put call ratio? Can you please confirm, if put call ratio analysis helps in analyzing the market trend

  43. S Senthil Kumat says:

    Team Zerodha.. you are doing fantastic work. today i am able to make some good profit in option trading.
    thanks . special thanks to Karthik sir.

  44. Ali says:

    Hi Karthik, can you please provide me a source or website where I can check put call ratio chart or data?

  45. Shafeeq says:

    Hello Sir,
    When can we expect currency and risk management & trading psychology modules to be available?
    Regards.

    • Karthik Rangappa says:

      Cant really commit a timeline Shafeeq, but we will certainly put up the content as soon as we can. Thanks for your patience.

  46. Ramesh Vijayarangam says:

    For a beginner like me, this is really a great document. It gave me a good understanding on Future Trading (In fact all previous modules I red so far are good). I convey my sincere thanks to the author(s). Also I appreciate entire Zerodha team for providing a good trading platform.

    I have one doubt on Futures (This question applicable to Intraday trades in SPOT market as well). Since the future market is cash settled, does that mean there is no restriction in number of open interest at any point of time? To be more clear, Say there are only 1 lakh shares of a company available for (or held by) public. However, it looks like there could be more than 1 lakh open interest in Futures market as no one is expected to take delivery and all are squared off on expiry date. Is there no restriction in number of open interest?(Though sum of Long and short is zero). Which mean Bulls (or Bears) can manipulate the quantity to pull the price to their direction without any restriction? Apologies if my question is not making sense, May be I misunderstood something.

  47. Naresh says:

    during the day there is NRML and MIS component in futures trading which together form part of OI of nifty futures as well as nifty futures volume. By the end of the day, the MIS part is squared off leading to increase in volumes but reduction of OI. So if you look at EOD, I guess that volume part which contains both MIS and NRML part will much higher than OI. I also assume that during the day the OI increases because of MIS effect and then reduces by EOD. Your comments will be helpful. Also, how to look at the above data ie. where to look for MIS and NRML futures data during the day. Thank you in advance

    • Karthik Rangappa says:

      This is exactly why you need to look at EOD data 🙂 Real time OI information can be a bit misleading at times.

      • Naresh says:

        Thanks Karthik for the reinforcement. Please consider that I am a newbie and hence your answer’s language should be simple. The next question is how do news channels etc. provide longs and shorts of index futures for FII. Both EOD as well as on Net basis ? Thanks again

      • Naresh says:

        Please correct me if I am wrong — it is said that derivatives behavior leads the stock price movement. This is particularly important during settlement thursdays and otherwise. can you explain or provide a link or provide a book reference where the linkage between future prices and stock prices can be explained .. Thanks again

          • Naresh says:

            Dear Karthik, What is the significance of OI and OI change on the last thursday ie. the day of settlement. I am assuming that on the last day the change in OI should make the OI close to zero !! In other words,, OI change value should be very close to OI value ! Regards

          • Karthik Rangappa says:

            Yes it gets reset to zero on the day of expiry, but the zero OI is not displayed anywhere as it is implied.

          • Naresh says:

            Hi Karthik , Managed to discover the number of nifty contracts bought and sold by FII on NSE website. I also concluded that the number of contracts dealt by FII on nifty futures is a very tiny percentage of the overall change in OI for nifty futures on daily basis. Could not understand why the impact of FII is considered so important by channels when their percentage impact is small ?

          • Karthik Rangappa says:

            FIIs play a huge role in spot market, you should consider that as well.

  48. vivekraikar says:

    There is a module option trading strategy.. is there any for futures trading ?

  49. Somesh Gupta says:

    Very Nice n Very Helpfull, Previously we try too much to understand but result is poor, after this we r satisfy. Thank’s Karthik…

  50. Kunal Vakharia says:

    Hi karthik,
    Greetings for the day.
    In today’s derivative bhav copy there is net increase in stock futures open interest by 1.57 cr shares where as in participant data there is overall decrease in open interest of stock futures by 5499 contracts. Can you kindly explain how it’s possible as I am unabletounderstand.
    Thanks and regards
    Kunal vakharia
    Bhav copy of 22-6-2016.

  51. dhawal says:

    Hi Karthik,
    This is with respect to chapter 12.2 OI and volume interpretation. As mentioned above, when OI and prices increase more trades on long side, when OI and Price decrease it is long unwinding etc.
    I have this doubt since long :- If the price increases and correspondingly OI increases how can it be interpreted as increase in contracts on long side. As there will be equal sell contracts for the long contracts and so on for other situation. Correct me if I am wrong

    • Karthik Rangappa says:

      Its just an empirical inference based on the fact that the price has increased along with increase in OI. Likewise with increase in OI and a decline with price.

  52. Prashant Warrier says:

    So a typical move from an OI perspective will be……As prices increase, OI increases then at some point (tops) prices become stagnant and may even start falling. At this inflection point, shouldnt OI show stagnation…..or maybe a little reduction…..Since the longs will be liquidating and fresh shorts may be getting added…..because along with fresh shorts, the long will also reduce…..then maybe after a few days, OI will again increase due to short buildup? I am just trying to determine how do we see the churning of OI…..Is there a way?

    • Karthik Rangappa says:

      This would be tricky, as the entire OI theory is empirical.

      When prices fall (assuming at tops) the OI should decrease — this would indicate unwinding of positions. If fresh shorts are added, then OI should indeed increase.

  53. Anand C says:

    Hi Karthik,

    Nice article. Can you explain in detail about Positiion Unwinding wrt Derivatives?
    I find it quite difficult to understand this particular topic.
    A detailed explanation like this one would help me and others a lot

    Again thanks for the nice article…

    • Karthik Rangappa says:

      Anand – position unwinding is basically referred to when you close an exciting position. For example if market has a many long positions and participants start to close them, then its referred to as long unwinding. Like wise closing out short position is called short covering.

  54. Kelvin says:

    Very informative website and tutorials. Enjoy learning from you although I’m not from the India continent. Thanks a lot for the efforts and keep up good works!

  55. Sathiyaseelan says:

    How to calculate Rollover percentage? It would be very helpful if you share formula with real time example.
    Thanks in advance.

  56. Abhishek says:

    Hi Karthik,
    1) In the last table of Open Interest, you mentioned that if price and volume increase then it means trade is more on long side. But long & short sides are always equal so how can one side be more than other.

    2) In case of futures, at the time of squaring off the position should we compare the price with spot price at that time or future price only.

    • Karthik Rangappa says:

      1) As I’ve mentioned this earlier, this is an empirical study

      2) You should ideally be comparing this to the profitability of your position.

  57. Govind Shenoy says:

    Amazing content. Been reading. I’m a new trader with two losses, but learning a lot. Thank you.

    Just a small error which i found – But is typed as buy.

    — this line — Clearly volumes and open interest are two different; ** buy** seemingly similar set of information.

    Thanking you

  58. PA0684 says:

    Hi
    Greetings to all.

    Would like to know how to get LIVE Change in Open Interest for options in Zerodha PI platform? Or other than NSE site where can i get this?

    Thanks and Regards

  59. Yugesh says:

    Hi!
    Please let me know if Zerodha does not allow buying/selling call or put of a company whose results are due next day. I tried buying calls of adani power and tata power at about 3:17p.m today but it disallowed with the following message “rms:blocked for optstk mkt nse_fo broker- zerodha remarks: option stock market orders are not allowed block type: all”

  60. Asu says:

    Hai ji,
    What it mean in NSE site OI Spurts ??

  61. Manish says:

    If we buy a script in ban period and sell it on the same day, will it cause penalty, As I am not creating new position?
    If I carry the position it is entitled for Penalty, what about Intraday?
    Please clarify

  62. punit417 says:

    Dear Sir,

    Please clarify below doubt. How can change in open interest be negative before expiry in case of call and put options in Indian stock market? As per my understanding, all the options traded are European in nature, thus all the square-off is done only at the expiry. Negative change in open interest essentially means that some contracts were squared off thus reducing the number of open contracts in the market. Since we are trading in European options, how can change in open interest be negative before expiry? I have seen this behaviour for both ITM and OTM call\put options. Please correct my understanding.

    Thanks
    Punit

    • Karthik Rangappa says:

      Change in OI alone is not negative, it has to be associated with the price change as well.

      • punit417 says:

        Thanks for he revert sir. But my original query is still unanswered. How can change in OI be negative in between the month? Doesn’t that mean square-off of options which is not possible in case of European options?

        Thanks in advance.

        • Karthik Rangappa says:

          Change in OI can certainly be -ve when there are more contracts closed than being created.

          • punit417 says:

            Thanks for the reply. So contracts closed means squared-off right? So is it possible that contracts can be squared-off before expiry date in case of European options? As per my understanding, European options can be squared-off only on the expiry date.

            Thanks in advance.

          • Karthik Rangappa says:

            Closed can mean squared off or let to expire. Yes, it is possible to square off anytime before expiry. However, the settlement will happen only upon expiry.

          • punit417 says:

            So negative change in OI in case of European options is possible?

          • Karthik Rangappa says:

            Yup.

  63. Asu says:

    Thank u KARTHIK Ji,
    Plz clarify it . In nse site OI spurts means change of OI. Which OI change ???
    Option OI or Future OI or any specific call or put OI Or all together ???

  64. Subhajit Sarkar says:

    Why dont you come up with a module on intraday day trading strategies.

  65. Asu says:

    Thank u Ji,
    But still i am in confusion . OI Spurt refers change in OI o.k. My question is which ones OI change ?? In that row in NSE site there is a colum of Options (Premium). I am asking in that particular options OI change ??

    • Karthik Rangappa says:

      OI refers to the position wise change and not really premiums. So for each Futures/option contract there will be an OI change on a daily basis.

  66. Rashmi says:

    Hi.if a security is in ban what will be the effect on price in it.eg ceat.its in ban and the price is only falling.wen can it go up.

  67. Sudeep says:

    Hi,
    In the NSE OI Spurts data page, OI of a particular stock falls rapidly at 3:30 PM. Why is that so? For example on Aug 23rd, OI % Change for JUBLFOOD is at 36.09% at 3:29 PM and at 3:30PM it is at 5.99%. For HDFC at 3:29PM is 17.13% and at 3:30 it is 0.49%. Can this happen?If yes, what can be explained. Or the data is wrong in NSE. I am a bit confused.

  68. Vishal Saini says:

    Really appreciate your effort and Thank you so much.:)

    I know learning myself about trading would make me successful trader instead of blindly following expert advises. I am not expert in this domain for now so for the time being Could you suggest some websites which could be followed for stocks recommendation(and know about stocks to buy/sell,target value,stoploss,time duration to hold position) ???????

  69. Arun Kumar Kushwaha says:

    Hi Team Zerodha,
    i got lill bit confused with the Details Shared with you here on Varsity. Plz Clear my Doubts Definitely there is some Issue with Typing related error but i m not able to figure out which one is Correct..

    plz have a look on these Screen shots …
    1. There is Difference in Module 4 Chapter 12 OPEN INTEREST…
    PDF downloaded version has one additional data for Price Vs Volume . Screen Shot(http://prntscr.com/cbqeo5)

    2. And there is also conflict with the theory between Module 2 Volume Analysis Interpretation and with Module 4 Chapter 12
    Plz have a look on Screen shot.(http://prntscr.com/cbqfby)
    as in PDF module you will find the different Interpretation for the Volumes mentioned in the Screen shot.

    Plz sir Clear the issue, and tell me which one is correct…
    Thanks..

  70. Praveen says:

    Is it possible to identify the long and short OI. Since most of the website gives only OI. It doesn’t say whether traders are bullish or bearish

    • Karthik Rangappa says:

      1 long + 1 short trade = 1 OI. So the OI tells you how many longs and how many shorts :). To infer bullish/bearish bias you need to associate the OI number with prices.

      • praveen says:

        Actually i am trying to infer the roll overs from near to mid or far month contracts. Is it possible to get the individual roll overs (long and short) from contract month to another.

        • Karthik Rangappa says:

          Maybe, but I’m not sure of a reliable source which can provide you this information.

          • Praveen says:

            Thanks Karthik. your knowledge sharing is beyond thanks.

            Is it possible to identify the no of long and short OI in a future derivative (for example if there is 100000 OI is it possible to identify how many is long and how many is short?)

          • Karthik Rangappa says:

            Praveen – 1 long + 1 short = 1 OI. Likewise 100000 OI means, 1000000 long and short.

  71. Praveen says:

    Is the OI mentioned in nse india website is number of lots or number of shares? (i.e 1 lot = x no of shares.)

  72. Santhosh says:

    Hello Sir,
    Can i BUY and SELL at same price of future stock.is it possible,mean i want to BUY and SELL at one [email protected]

  73. Nizam says:

    Hi Nithin, What do we need to infer when delivery volume or delivery % is decreased compared to yesterday along with increase in price and decrease in futures OI. Thanks.

  74. madhu says:

    what percentage of delivery based buying is considered high and what is low?also, when OI decreases with an increase in price it is said that this could be when the institutions are taking delivery of the stock and hence price go up which leads to speculators unwinding. how can one look at the charts and look up OI data to come up with a trade? where do the short and long build up of data that we hear published?

  75. What is the Minimum OI change will affect stock movement..I mean in percentage or OI.

  76. harsha says:

    Hi Karthik,

    I didnot get this. So between these 5 traders OI finally became 10. But in the over all market wouldnot the number of contracts remain same.
    Every trade will create buy or sell.So where will the contract vanish.

    • Karthik Rangappa says:

      The existence of the contracts depends on how many people hold then (either long or short). So in the case explained, there were totally 10 that were created…if you go in to buy a new contract (and it should match with a seller wanting to sell the same to you) then a new contract opens up.

  77. Raj says:

    going through OI analysis on money control i found only PUTS listed under “increase in OI & increase in price” when , this is where the sentiment is long.shouldn’t there be CALLS too? similarly only CALLS listed under”increase in OI & decrease in price” when, the sentiment here is bearish. shouldn’t there be PUTS too? i know when you buy CALL or PUT it’s long and when you sell CALL or PUT it’s short. am i missing something?

  78. Raj says:

    http://www.moneycontrol.com/india/fnoquote/axisbank/UTI10/2016-10-27/FUTSTK/XX/0.00/true
    there are no filters available, when u click on a particular script you get the data as it is under the heads such as”increase in oi & increase in price ” etc. do go through the link i have attached and let us know how you read them. thanks karthik.

  79. Praveen says:

    Hi in nse market pulse September 2016 in page 7 there is participant wise oi for future index long and future index short. The data is mentioned in percentage. How to find numerical data for each index (nifty, bank nifty etc.)and on daily basis. The document is monthly publish.

    • Karthik Rangappa says:

      Check the scrip wise, end of day data on Pi.

      • Praveen says:

        Hi I checked for the data and found it has long unwinding short covering etc. I would like to know only the long or short open interest for each script at the Eod. Can you please let me know how to find the data.
        Where to find the requested data in nse website.

  80. Rajendra Kumar Mondal says:

    I have acount in Zerodah. My take one option in nifty 8800 call but it currently trading 8630 can i change my contract next month november 16

  81. madhu says:

    Karthik. Arvind ltd is at a life time high of 418. when one looks at the data for today th OI has shrunk by 23% and the price has increased by 2.5%.this means there is short covering. the deliverable to traded quantity is 10%. which means FII’s haven’t brought huge quantities for the price to shoot up and hence speculators r unwinding. my question is, do you think speculators would have shorted merely because the price is at an all time high? if so, should there have been a build up of shorts earlier?

    • Karthik Rangappa says:

      From the data points you give me, I get a sense this is bull trap…and yes, many traders short hoping for a quick reversal in prices when stocks hit all time/52 week high.

  82. Hello Sir, Thanks for your neat explanation. I have few queries. I am pretty new to Futures. I would like to understand; what should I do to close the futures trade? Am I obliged to buy the lot at agreed price by Thursday of the month? As you said futures happen through cash settlement should we really buy the shares or settle only the cash difference which i hope is already done through M2M? Will our margins be erased if we do not buy those shares? Can you explain please..

    • Karthik Rangappa says:

      You will find all the answers for your queries in the module, its explained in detail. I’d request you to read from the start of the module 🙂

  83. raj says:

    Karthik, if a chart looks bullish with OI and price increase and the deliverable to traded quantity around 60%, can one with all the data above trade on the long side with absolute conviction? is there an other dimension you would advice? i am trying to be comprehensive and follow a trading strategy through the above.do advice. thanks.

    • Karthik Rangappa says:

      I’d give the chart more weight age and build my position based on it. OI and deliverable qty is good to know, but I’d not depend on it entirely.

      • Raj says:

        ok, but referring to your answer to Madhu above one would know it’s a bull trap only because the traded quantity in the above case of arvind ltd was 10%. the chart would have looked positive by itself. so knowing the data points of OI, price and deliverable% would help. isn’t it?

        • Karthik Rangappa says:

          Well, if you ask a ‘OI purist’, he would consider only the futures price and OI data. The % deliverable is good to know but I would not rely too much on it.

  84. kumar says:

    How to get past few days data for Open interest and Change in open interest for an underlying? Also, would that be different from the relevant data for different contracts for same underlying?

    • Karthik Rangappa says:

      You can get the daily EOD OI data from the Bhav copy report from NSE. Yes, technically it should be different for each contract of the same underlying.

      • Kumar says:

        Thank You so much. Help me a bit more with this. I have observed that open interest falls tremendously during the last week of expiry since the positions are getting closed . So, how can it indicate anything meaningful as we know when OI falls its either short covering or long unwinding depending upon price movements.

        Correct me if I am wrong. Change in OI is used to establish possible top/bottom or trend confirmation. Change in OI for the underlying rather than contract wise data should be used for such analysis. What do you think?

        While I can find the underlying wise data for last two days here https://www.nseindia.com/products/content/equities/equities/oi_spurts.htm but I can’t find the data for more than last two days 🙁

  85. abhishek kumar sah says:

    F&O margin calculator show total margin = 62134(nifty fut) where as equity futures give the value as 49026???(i could not attach the screen shot)

    Also how to know the exposure margin for intra day nifty fut, as the margin calculator give the span and exposure of the normal trade.

  86. Vikas says:

    First of all a great module, i read it completely. 3 questions

    1. How increase in price and increase in OI tells you there are more longs. For each long there is someone shorting it as well. To me change in OI is just an addition / removal of contracts which has both sides. My whole confusion is how can i be sure whether longs are more than shorts when they are equal in number.
    2. Is there any indicator or information that tells me a future had more buyers than sellers or vice versa who could not complete the transaction.
    3. I am eagerly looking for trading strategy module. When is it coming up? Any other reliable study material for trading strategies.

    • Karthik Rangappa says:

      Thanks Vikas.

      1) As I’ve stated earlier, OI analysis is empirical. On its own merit it conveys nothing. One has to associate the price movement and derive some meaning.

      2) No

      3) Hopefully, soon :). I’m not sure of any reliable source for this.

  87. abhishek kumar sah says:

    from where can i calculate the exposure margin for the MIS product type? For NRML product type Zerodha margin calculator gives the value but what about MIS?

  88. abhishek kumar sah says:

    i have an open order, now lets say i place a limit order to square off the open position. the order has been placed(not executed). now due to some problem like network connection or current failure i am disconnected form kite or pi. So will that order still get executed when the price is triggered??

    • Karthik Rangappa says:

      Once the order is placed, it will lay dormant with the exchange till the price matches. You will have to modify the order if you wish to cancel it.

  89. amit says:

    hi KARTHIK RANGAPPA
    can you tell me trading arbitrage i gold to gold mini in mcx

  90. amit says:

    hi KARTHIK can you tell me when demand is increase in gold which gold script is increase like gold goldmini gold petal

  91. amit says:

    hi KARTHIK when commodity expire in near and open interest in decreasing in goldm ? wht will be in gold to goldmini?

    • Karthik Rangappa says:

      Same. As a derivative contract approaches expiry, its natural to expect a decline in OI.

      • amit says:

        but when both contract expiry is near normally diference of gold and gold mini difference will be spread ya sink what cause?

        • Karthik Rangappa says:

          There should not be any difference as its the same underlying. If there is a difference, then the same will not last long as arbitragers would set up trades to exploit it.

  92. Shrikant Sharma says:

    Am a newbie in market.Was midway in the futures module( hadn’t reached the OI segment). Was actively following a particular stock JSWSTEEL. Was doing Paper trading and also occasional token trading to test my strategy.Since I have started trading, this particular stock was trading in the range of 1500-1700. but on 3 and 4 Jan 2017 something bizarre happened( atleast for a newbie like me) Please see the description below:-
    3Jan closing price:-1644.55
    4 Jan open price:- 166.75.
    Thinking that it was some mistake on part of nseindia website, I refreshed the webpage to find the same figures. I scanned all the possibilities to find what happened to the stock in top 50 losers, top volume gainers, 52 week low, low price band hitters, but couldn’t find this stock in any of the headings.Then upon clicking OI spurt tab, Voilaaa….. it was on top of the list.After that I went through the OI segment of but couldn’t understand what happened with this particular stock.
    underlying stock:
    52 wek high- 188.60(18 Sept 2016)( I booked a profit at 1640 the very previous day, how could this be the 188.60 be 52 week high ?)
    52 week low :- 95(12 Feb 2016)
    Upper price band:- 180.85
    Lower price band :-148.05

    Stock futures data(Expiry 25 Jan):-
    Previous Close( 3rd Jan 2017):-1649.65
    Open (4th Jan) :-164.20 (that was a whopping slide of 1486 points….down by 90%)
    Change in open Interest:-Whopping 883.50% Jump (4,61,10,900).
    Please explain what all went through the night b/w 3rd and 4th Jan that led to sudden fall of this stock.
    What would have happened to the traders who were holding this stock or the futures ? Are they on the street with a begging bowl ?Please present a detailed analysis of this real life phenomenon especially in light of OI.
    Regards and Thanks.
    PS:- previous to 4 Jan , the average volumes trading was in thousands (50-70K) and also the bid-ask spread was also large (50paise to about 100paise)but today the volumes trading were in lakhs and .bid ask spread was 5-15 paise.

  93. amit bhardwaj says:

    hi KARTHIK can you tell me what cause difference between gold and gold mini. some time 100 rs sometime 300 ?

  94. muditsinghal257 says:

    Hi Karthik,
    I just want to ask as OI data is for future & options contracts, is it relevant to study it for taking trading decision in cash segment. As I know prices of any stock in spot/cash market fluctuates based on demand & supply of shares and not its derivative contracts. I also know that derivative price are dependent on spot/cash mkt prices of underlying security and not viveversa. So Why we should look for OI data before trading in cash segment.

    • Karthik Rangappa says:

      No, it does not make sense to look at OI info for making investing decisions. OI data is short term in nature, and bears no influence on long term performance of a stock.

  95. AVINASH KUMAR says:

    Hello sir,
    1) when call IO decrease but call volume increase or vice versa..what its interpretation???
    2) there is any way to figure it out whether call option writing or call option buying if call OI increased???? i read article in which its mentioned that option writing on some specific strike price…how they analysised ????

    Thanks in advance

    • Karthik Rangappa says:

      The table in the OI chapter suggests the possible interpretation for change in price, volume, and OI.

      When OI increasese, both buying and selling increases.

  96. Akash says:

    Can the change in OI be greater than the volume of traded options on that day?

    • Karthik Rangappa says:

      Yes, it can.

      • Akash says:

        But how?
        Please explain Sir

        • Karthik Rangappa says:

          Volume is the number of contracts traded for the day. OI is a carry forward number and keeps changing till the expiry.

          • Akash says:

            Yes Sir, that’s true.
            But I’m not speaking of OI
            I was referring to the “change in OI” for a day.
            Can that be greater than the traded volume at any point of the day.
            And I’m assuming the change in OI is only for the day and not carried forward.Am I correct, Sir?

          • Karthik Rangappa says:

            Yes, change in OI is only for the day. Imagine a situation where there were 2 trades for a day, but the order size was large enough, creating a huge change in OI.

          • Akash says:

            If the order size is large enough that would be reflected in the volume as well, isn’t it?

          • Karthik Rangappa says:

            If the order gets executed, then it will.

          • Akash says:

            Sorry Sir, but it’s still unclear how the change in open interest be greater than the volume as Volume comes first and then the change in Open Interest.
            Sir an elaborated explanation would do a lot better. I have seen the change in Nifty futures OI be greater than the Volume a few days back but couldn’t digest as how.

          • Karthik Rangappa says:

            You may have a point here, Akash. Apologies for misleading you. NSE’s intraday OI data is not too accurate, do read this – https://tradingqna.com/t/is-the-live-open-interest-oi-data-being-provided-by-exchanges-correct/7208 .

            You need to think about these two as independent variables. Volume represents the total number of shares/contracts traded for the day. Today’s volume will not impact tomorrow’s volume. They are unrelated. However, OI comes to life moment a contract is introduced and continues to exist till the contract expires. Its a cumulative number, meaning today;s OI is carried forward to tomorrow.

            Given this, OI can be lesser than or equal to volume.

  97. Ankit says:

    what does negative volume percentage means ?

  98. Shyam says:

    Dear kartik,

    How to interpret the OI data? I mean Where can I get the data of OI ? I have recently opened Zerodha a/c . Can we add seperate window for OI.
    As I am a positional trader this is entirely a new topic for me . I want to start trading in futures and options. I want to know how to begin analysing OI and volumes. How Oi affects futures and options?

    • Karthik Rangappa says:

      Firstly, welcome to Zerodha family, we are happy to have you on board 🙂

      OI data is available on a EOD basis on PI and even NSE website. I have explained OI in good detail in this chapter, I’d suggest you give it a read.

  99. sat says:

    exchange create unlimited number of future contracts on buy/sell demand and match the order with best bid/offer right?And any other generally unknown thing abt this process? pls in detail…

    • Karthik Rangappa says:

      Exchanges do not create unlimited future contracts. There is a certain formula based on which contracts are created. All the details worth knowing are discussed in this module.

  100. Sai Sreedhar says:

    Hi Karthik
    How can we interprete any trend reversal based on current, mid, far months contract prices?

  101. Ayush says:

    1. Suppose i have to go long/short & i want to enter a contract, what will happen when i will enter a contract ,will the new contract generated or i will get the transfered contract(position of another person who has sqaredoff his position)?

  102. rohit sharma says:

    Hi karthik.
    I want to share today’s experience. I usually trade banknifty options. Today I wanted to take position for short strangle strategy. Banknifty was trading around 23500. I sold 5 lots of call option strike price 23600 and I wanted to sell 5 lots of strike price 23500 but whenever I placed the order, it was rejected and message shown “RMS RULE -options strike price based on LTP………………….. across product ”
    I contact customer care they told something about open interest , I could not understand however I know what open interest is, but I don’t know how due to this order can be cancelled.
    This is my first time experience, I contacted my one friend who is client of another broker and he was able to place the order , how is this possible?
    Order rejection was at broker level?
    Please explain
    Thanks

    • Karthik Rangappa says:

      Rohit, exchanges impose open interest restrictions at trading member level. A trading member cannot have more than 15% of the total OI. Zerodha is probably the only broker hitting this 15% OI limit on weekly bank nifty positions. This is probably because, clients recklessly buy OTM options, hoping there would be a sudden movement on expiry day….you can think of this as a lottery instinct…and hence we are hitting the OI limit consistently on weekly bank nifty contracts. One of the ways to prevent this is by restricting clients to trade OTM strikes. What you experienced was the same.

  103. Asu says:

    Hi Karthik ,
    In nse site Equity open interest change Home > Live Market >Live Watch >Get Quote
    Traded Volume (contracts)9,337
    Traded Value * (lacs) 65,411.29
    VWAP 87.57
    Underlying value 87.85
    Market Lot 8000
    Open Interest 3,18,24,000
    Change in Open Interest 46,80,000
    % Change in Open Interest 17.24

    And in OI Spurts page % Chg in OI is different
    Whats the different open interest spurt change and equity derivatives oi change.
    Plz clarify .

  104. Asu says:

    Dear Karthik.
    What I am asking in NSE Site there are two pages oi showing
    One is in > Home > Live Market >Live Watch >Get Quote and
    Other is in >Home > Live Market >Live Analysis > OI Spurts
    Both are different % of io change . In equity derivatives page % of oi change is 17 %
    at same time in OI Spurts page % of oi 43% . I am still confusing ????

  105. “For example, if the open interest of a call option is 1000 contracts on day 1. The next day, bulls buy 11,000 contracts and bears sell 10,000. The open interest will be (1,000 + {11,000-10,000}) = 2,000 contracts.”… i found this in quora .. i think this eg is a wrong one… i think oi suppossed to be 11000 on the 2nd day

  106. on what circumstances volume will be lesser than the “change in open interest” ?

  107. i saw this on EOD data? how is that possible…

    • Karthik Rangappa says:

      Guess, someone had asked the same query earlier, there was a discussion around this. Request you to look through all the comments. Thanks.

  108. i went through the comments already but it was not clear .. can you please explain with an example…. please sir…

  109. Adnan says:

    Sir,How can we say if OI increases More trades on long side as for increase in OI there is equal no. of long and short?
    tks

    • Karthik Rangappa says:

      OI on its own does not convey much information, hence we need to associate OI data with price information.

  110. kiranintouch says:

    Hi Karthik,
    This is regarding arbitrage trade in futures market. I understand from today’s session that screener (smallcase ) provides arbitrage opportunities on the basis of end of day. Request you to suggest right time to enter positions. Would entering after market order be fine or you suggest some other timeline.
    Also is there a free paper trading platform for futures and options. I see that in moneybhai you can only paper trade in stocks.

    • Karthik Rangappa says:

      If you are required to short cash, then you are better off trading cash and carry on an intraday basis.

      • kiranintouch says:

        Thank You Karthik. Request to confirm my understanding for below two scenarios. Also request to provide if there will be any other risks in addition to the below risks when we enter into Arbitrage trade.
        Scenario 1 :
        a. Short in Cash Market
        b. Long in Futures Market
        c. Close the trade on the same day assuming price difference in cash and future market will decrease.
        Risk 1 : Price difference increases instead of decreasing by EOD.
        Risk 2 : Future price decreases exhausting margins before closing both the positions.

        Scenario 2:
        a. Long in Cash Market
        b. Short in Futures Market
        c. Close the trade on the same day if price difference in cash and future market will decrease. If the price difference does not decrease hold it till expiry assuming the price difference decreases by expiry.
        Risk 1 : Future price decreases exhausting margins before closing both the positions.

        • kiranintouch says:

          Please ignore risk in the above scenario 2, as i think that would not be a risk. However as already mentioned, please do highlight if there are any other risks for above scenarios.

        • Karthik Rangappa says:

          Scenario 1 & 2 –

          Apart from what you’ve mentioned, you may also consider execution risk – you initiate the position thinking that the spread between the two are at a good level…but by the time you execute you may not get filled at same price, this is particularly true when you place market orders

  111. Anshul says:

    Hi. Can I see the graph of OI for a Futures Contract in Pi / Kite. I could not find this, and if it is not available, I think it would be a really cool and useful feature. Since, the OI can be seen at any time, it should be relatively easy to just store the values and show a time graph.
    Cheers.

  112. LOY says:

    Hi Karthik !
    Is the market maker or the exchange responsible for change in OI ?
    Because at the end of every month the exchange only rolls out new contracts as mentioned in a previous chapter

  113. Jayesh says:

    Hi,
    Is it possible that once I short sell the contract and at lower level when I want to buy the contract, but there are no seller in the Market?

  114. Ashok says:

    Hi,

    Hedging option with future… Does this work?
    Lets say i see a strong bull signal (Intra day trading). I bought 1 lot of bank nifty. But as soon as i bought market starts moving down, so i bought 2 lot of ATM Put. If market reach back to my original price, i will exit PUT, else, i will exit future.

    Is this good?

    Thank you

  115. Ashok says:

    Hi,
    Today I started digging deep into OI and I found that OI in options chain seems to act perfectly as support and resistance. I checked for index and stocks. It exactly shows the exact reversal. From monday I am planning to use Nifty options OI to trade nifty futures. Any suggestions or comments about this startegy?

    Thank you

  116. Jayesh says:

    Hi,
    I have been study future trading.

    I want to know suppose I buy one lot of any particular stock say TCS. And I don’t sell till the expiry. What will be the consequences. Exchange will sell my one lot of TCS and credit my account with whatever was the price at the date of expiry or all shares will be credited to my Demat Account??

  117. Divjot Singh Gulati says:

    Hello Sir,

    My question is

    — Since all calls and puts are derivatives of the underlying asset, then why do experts say that there is high amount of call writing or put writing at particular strike and it won’t allow the underlying asset to cross that.
    Suppose a stock is trading at 205. And there is high amount of call writing at 210 and put writing at 200. So the stock won’t find it easy to cross 210 or 200.

    How can a derivative dictate the underlying asset?

    • Karthik Rangappa says:

      Nobody controls anything in the market. When they say ‘they will not allow’, then it means that they don’t know what they are talking about.

      If there is a high amount of call writing, it only means just that. The writing could be done by 1 participant with a large appetite for risk or by many who believe that the stock may not go up.

  118. Srimanta says:

    Hi Karthik..
    First of all thank you very much for the way you explained everything..
    My queries are as below,pls reply.
    1. I have back tested my execution strategy (entry and exit) in nifty fit. mostly are positional (from few hours to 5days). It gives 89% profitable percentage for 45 day while 79% for 120 days(consistent over other day period also). But risk to reward ratio show as 0.98
    What is your opinion, is there anything I am missing here?
    2. Is there any way in PI or anywhere where I can backrest more than 120days.

    Thanks in advance.

    • Karthik Rangappa says:

      Good luck for finding a great strategy.
      1) Maybe you want to reduce the accuracy to increase the RRR. It always helps to have an RRR of over 1.5
      2) I guess so. Please contact our support for this.

      • Srimanta says:

        Thanks for your reply.. Also pls guide how can I plot in chart Nifty 50 volume(accumulated volume of 50 stock).
        Is there any way to put stop-loss and execute buy sell of nifty option from Nifty 50 chart.
        Pls reply.

        • Karthik Rangappa says:

          Nifty 50, the index, is not traded on the exchange. You can trade the futures though. The volumes of Nifty 50 represents the collective volume of all the Nifty 50 stock.

          • Srimanta says:

            Thanks for answering.. I know Nifty 50 is index and can not be traded. My question is-
            I can chart Nifty 50 in kite and pi, but volume(traded volume of 50 stock of Nifty50) is missing. Can I get that Nifty50 volume at bottom of the chart like Nifty Future.
            I know it seems silly… Pls reply.

          • Karthik Rangappa says:

            Unfortunately volumes are not available for this 🙂

  119. Srimanta says:

    It’s Nifty future.

  120. Ramu says:

    Good, I dont see any of this open interest column in zerodha

  121. Yogi Singh says:

    Hi Karthik,
    I was just curious to know that, is it possible to get exact data, of number of long & short contracts traded in Futures segment of any underlying(stocks/indices/currency) on daily basis!? eg ( 50,000 longs vs 35,000 shorts out of 85,000 contracts traded) keeping aside the OI, price action & existing longs/shorts being opened or closed !! Just concerned with no. of long/short contracts(vol) traded on daily basis!!! (If No, then any suggestions to estimate the same)

    Thanks,
    Keep up the good work
    Cheers tc 🙂

    • Karthik Rangappa says:

      The number of long position should match the number of shorts. It’s best to get this information from NSE on an EOD basis.

  122. Anoop says:

    Hi Karthik,

    Is there any tool available ( or can we do it through Pi\ZT) to collect open interest for a particular time frame to analyze the trend ? There is an option in Nest Trader to collect VWAP statistics for the different timeframe, but the problem is everytime we need to manually collect this data.

  123. Bobby says:

    why is vol always less than change in OI in options?

  124. Hemant P says:

    Change the name Ajay to Arjun in table in subparagraph 12.2 OI and vol. interpretation. It is adding more confusion in understanding OI and volume.

  125. sathish says:

    open interest change in -15% it means what happen in the market?

  126. Jayesh says:

    If % change in open interest is increasing does it means that trend is positive? can we enter the trade ?

  127. Ravi Kumar BA says:

    Hi Karthik,

    Today saw this msg on Kite.
    “Deep out of the money BANKNIFTY options are blocked due to OI restriction by the exchange. If your order is rejected, try a closer strike price.”

    Can you please elaborate the meaning

  128. K N Viswanathan says:

    I traded on Nifty twice (1 lot) after reading your material & made small money. I want to know if Bank Nifty (11th Sep 17) is trading at a discount (lower than spot around Rs 20.75) but closed higher than the previous day (up by 1.14%) & OI addition is abnormally high (25%) on that day, what do you conclude. HDFC Bank gained on this day in a big way(1.56%) but HDFC Bank Futures is trading at a discount of Rs 12/- but OI addition is 3.96%. PSU Banks & ICICI Bank were down.

    • Karthik Rangappa says:

      Frankly, its very hard to comment on such situations, Vishwanathan. To make any sort of conclusions, one has to backtest for these scenarios and check the historical behavior and further looks for consistency in patterns.

  129. K N Viswanathan says:

    If supply is higher than demand in futures, then futures would trade at a discount. But the confusing part is OI shooting up & price going up in spot & futures from previous day close.

  130. Nagaraja MV says:

    Is there ‘candle volume’ – chart on Kite

    pls suggest

  131. Kabilan says:

    Where can i see the Open interest plotted in a chart.,I would like to see OI as I would see the Volume in Kite. Any place where I can find this

  132. sahil swaroop says:

    hi, Karthik Rangappa,
    just completed your module on futures trading explanation was really awesome. material u wrote was great as well. I had a question how can a futures trader evaluate whether futures script is liquid to trade personally I see the how smooth the price action on the chart is.what u do to evaluate whether the futures script is having moderate to good liquidity to take a trade so there is not much slippage even if we get stopped out .it has happened to me a couple of time when risk on the trade was 10000rs but lost 12500or so on the trade due to slippage.

    • Karthik Rangappa says:

      The best assessment of liquidity is the difference between the bid and offer. The smaller the difference, the higher the liquidity. If the difference is high, then less liquidity and best to avoid placing a market order in such contracts.

  133. sahil swaroop says:

    hi Karthik Rangappa
    one more question what should be the standard no. of open interest and volume for the futures script to be considered liquid?

  134. SHANTARAM PATIL says:

    IN FUTURE WHO DECIDES MARGIN. WHETHER IT IS DECIDED BY NSE AS WAS TOLD TO ME .

    I OBSERVED MARGIN AND PROFIT/LOSS IS BEING DEDUCTED SIMLTANEOUSLY.

    ALSO I OBSERVED OPEN PRICE IS CHANGING DAILY.

    PL LET ME KNOW ABOUT THIS.

  135. SHANTARAM PATIL says:

    Dear sir,

    I have already gone thru your Margin M2M topic and the example given by u is very easy to understand.

    I have exactly the same table made to know daily margin shortfall due to M2M. But littlebit getting difficult to understand. I feel I have to take up the matter with my Broker Company as how they are calculating Margin pay in.

    Any way thanks for your guidance.

    Again I may come with some qyerry in this regard. Pl help.

    Thanks & Regards.

  136. Pankaj Agarwal says:

    Hi Karthik,

    I was trying to analyse FII statistics report published by NSE. I can’t understand if the report really can be true. I am putting here real data for “Index Futures” for 16 Oct’17 which baffled me for couple of days, finally forcing me to raise it here.
    Buy Contracts 47451. Sell Contracts 15748. Also I calculated the “Change in OI” (contracts), using previous day’s data. So Net OI addition was 27925. I did all math, but just can’t understand, how above numbers can be possible. It won’t matter if we say there are so many FIIs buying selling simultaneously. NO, that’s not a proper reasoning.
    OI addition need to come from an unclosed Buy or Sell contract. So maximum “change in OI” can be Buy Contracts + Sell Contracts (assuming no intra day sq off btw Buy & Sell) and Minimum “Change in OI” can be difference btw Buy & Sell (assuming complete intra day sq off for the Buy or Sell (which ever has lower volume)). As per this for 16 Oct’17, minimum OI change should be 31703 contracts & it can’t be 27925. Infact I found lots of such days.

    Could you please explain elaborately.
    Regards

    • Karthik Rangappa says:

      OI calculation is a little tricky as the live data (and I suspect the EOD data) may not be accurate. Read this – https://tradingqna.com/t/is-the-live-open-interest-oi-data-being-provided-by-exchanges-correct/7208

      I’d suggest you avoid building any strategies which rely on OI information.

      • Pankaj Agarwal says:

        Karthik, I have read this article before also, but it don’t solve my puzzle. The article gives a reasoning for why OI can be wrong during intraday trading hours (due to settlement issue), but do not raise question on EOD reports. I am precisely talking about EOD report (FII statistics).

        Now if you say that you question even EOD reports also (as you stated above), then there is no sancticy for any EOD report or any other report by NSE. Else, how can you be sure of any other report?? I doubt if this is the case as there would be cases filed against NSE for “misrepresentation of information”. The catch here is something else & I really want to know what is that.

        Could I request you discuss this with your knowledgeable peers/superiors to find a relevant reasoning. This clarity would be of big help to me as I doing some analysis for which this information would be critical.

        Regards

  137. ABHISHEK RAGHAV says:

    sir,
    could you write about future trading strategies. like you have a whole module of option strategies. just one chapter.

  138. Lokesh Kumar says:

    I just wanted to know that the Open Interest that is shown in Zerodha Terminal is different from that on NSE website (https://nseindia.com/live_market/dynaContent/live_watch/option_chain/optionKeys.jsp?symbolCode=-10006&symbol=NIFTY&symbol=NIFTY&instrument=-&date=-&segmentLink=17&symbolCount=2&segmentLink=17) though the volume shown matches with nse website. I justed wanted to know which Open Interest should be referred to, the one on the NSE website or zerodha NEST Terminal, and why there is discrepancy in the numbers.

  139. mahesh says:

    Thank you so much sir. Indeed great explanation for newbies.
    Please help me to understand on following.
    1) When a person wants to buy futures contract will it form a new future contract or existing contract will be transferred ? (assuming in both cases sellers are available)
    2) What will happen if I bought a futures contract for current month during first week of the month, and I wanted to square it off (sell it) after 3 days but there is no one willing to buy it?

    • Karthik Rangappa says:

      1) It can either create a new contract or it could just be a transfer of risk
      2) You can square it off anytime you want, not necessary that you hold it to expiry.

      • mahesh says:

        for second answer,
        Does that mean we can always square off our position in futures before expiry irrespective of any situation?

        Thanks for reply.

        • mahesh says:

          for second answer,
          Does that mean we can always square off our position in futures before expiry irrespective of any situation? I understand that we can square off before expiry but what if there is no one available to square off before expiry. As per the contract it is always possible to square off on expiry. But there is no guarantee about square off before expiry. Is my understanding correct?
          {
          my understanding on square off in futures – let’s say i bought a futures contract, if I want to square off my position before expiry I need to sell it (transfer of risk to someone who is ready to buy it) what if there is no one to buy it before expiry?

          square off – doing opposite of buy or sell
          }

          Thanks for reply.

          • Karthik Rangappa says:

            You can square off the position anytime you wish, however, as you rightly pointed out, if there is no liquidity, then you can not square off….btw, your understanding is correct.

        • Karthik Rangappa says:

          Yes, you can.

  140. mahesh says:

    Thank you sir.

  141. REENA says:

    Hi Karthik

    I am new to future trading. It will be a great help if you could answer following.

    If a stock in down trend and price are falling slowly but surely & volumes (no. of contract traded) declining heavily but open interest is rising marginally than what the trend suggest ? Does it suggest that bottom has formed and prices are likely to go up or any other trend ?

    Also suggest if any other precaution to be taken.

    • Karthik Rangappa says:

      I would be inclined to say yes, had it not been to rising OI. Rising OI suggests the bears are adding more positions – please note all OI related inferences are just empirical. Take this with a pinch of salt.

      • REENA says:

        Hi Karthik,

        Thanks for your answer. Yesterday on 14/11/2017 evening I analysed following data and decided to sell ‘NCC’ Today on 14/11/2017.
        However ‘NCC’ future rose to 5.68% from the close of 13/11/2017.

        Can you please let me know where I was wrong ?

        14/11/2017 : NCC CLOSE PRICE : 95.95 (PRICE FALL BY 7.83% FROM THE CLOSE OF 13/11/2017)

        Sell only @ 96

        Reason for NCC :

        On 14/11/2017 end,

        Rise in O.I. by 5.83% (13,84,000) TOTAL O.I. 2,51,36,000
        Rise in Volume by 299.78% (From 1 Crore to 4 Crore)
        PCR : 0.42 (More Calls are sold (Written) than the Put
        RESULT : POOR RESULT DECLARED ON 13/11/2017
        % of Deliverable Quantity to Traded Quantity : 24.77%

        I was convinced that NCC is going to fall but it was other way around. Your detail answer will help me a lot.

        • REENA says:

          Please read second line as
          “However ‘NCC’ future rose to 5.68% from the close of 14/11/2017.”

        • Karthik Rangappa says:

          Reena, all your analysis about volume, OI, PCR, price action etc works alright in the absence of fundamental news. When there is a fundamental news, which is the case here, you need to look at only the Fundamentals. You should be in a position to analyze the fundamentals and make sense of the numbers. Remember in situations like these – fundamentals supersedes technicals and everything else.

  142. rajeswari raju says:

    i want to know is there any web site where we can get increase in price and increase in open interest of our watch list , pl. clarify

  143. Nishant Sheth says:

    Hi Kartik,

    If there are 100 Open Interest’s in an Equity PE Options( OTM). If I am selling one that Options(OTM) and volume being trade is just 5-6 per day. What if I keep my position till last day(30th Nov,Thursday). If there is no voulmes being traded, will i still get to keep my premium or not?

    • Nishant Sheth says:

      Since OTM diverges to 0. Can u elaborate what will happen on the last day.

      Thanks,

      • Karthik Rangappa says:

        If the OTM continues to be an OTM even on the expiry day, then the option will be worthless and close at 0.

        • Nishant Sheth says:

          ok, so if i am selling OTM which is worthless on last day, i get to keep my premium. I got scared and bought and settled my OTM this month..:) I suppose this is what being panic means. I remember you mentioning in your option class…:)

          Can we trade options from smallcase’s zerodha login?

          • Karthik Rangappa says:

            Yes, you can keep the premiums as long as the option has expired worthless 🙂

            No, you cannot trade options via smallcase.

    • Karthik Rangappa says:

      Yes, if you hold to expiry then you will get settled automatically by the exchanges.

  144. Jay says:

    Hi Karthik,

    I have been following your series on this zerodha varsity portal, and I must say you are phenomenal in explaining concepts with apt illustrations and anecdotes. You are n inspiration, keep inspiring!!

    Thanks
    Jay

  145. Savan Patel says:

    Does 400 contract means 400 lots of particular future ? Pleae clear me..

  146. SAVAN PATEL says:

    You have not answered why change in spot price is different than future price ?

  147. JIGAR MODI says:

    Sir
    Pls explain me that what is realision between
    price vs volume vs open interest ….
    Pls explain it in triangle realisionship… Every possibility… As early as possible..

  148. ganesh says:

    sorry Karthik sir but first time i don’t like these cheerleaders in cricket !!
    sir my question is that Nifty 10500 strike has open interest = 5641275 what does this mean?
    1) 1 lot = 75 Nifty shares so total there is 5641275*75 shares or
    2) 5641275 shares means ( 5641275 / 75 )= 75217 lots
    >>> what is unit for OI= 5641275 (shares or lots) <<<

  149. Rohit says:

    This is case of NMDC – December 2017 contract
    21st Dec End of day –

    CONTRACTS OPEN_INT CHG_IN_OI STRIKE OPTION TYPE
    1 12000 6000 120 CE
    1 54000 -6000 127.5 CE
    3 6000 -18000 117.5 PE
    3 348000 0 120 PE

    120PE Change in OI is 0 but 3 Contracts were traded – would those been intraday positions ?

  150. Vishal says:

    Is there any possibility to view intraday OI data…an OI chart for scripts/contracts either in kites / PI?

  151. Prateek kumar jaiswal says:

    Hi,
    I have few doubts with regard to OI, will go one by one.
    If change in OI is positive(today’s OI – Yesterday’s OI) then volume should be at least equal to count of change in OI plus it could be even more than that.
    Isn’t it?
    If yes but alot of time I have seen less volume than change in OI(when change in OI is positive).

  152. pavan says:

    sir in kite zerodha how we add open interest to the future cotracts????

  153. Sayan Kundu says:

    It would really great if you add an article based on the difference between Futures and options.
    Lot of people have this query including me . Thanks in advance 🙂

  154. Hardik Shah says:

    Hello,

    Do you think entering a trade which has Increase Open Interest & Increase in Price (weekly basis) ‘could potentially’ be a profitable trade?

    Reference is from SmallCase Screener ‘Fut: Long Build Up’

  155. Raghul says:

    Hi, can I know which website can I refer to get breakup of OI in Futures. or can I know all the break of OI for Future Stock in PI.

    • Karthik Rangappa says:

      The breakup of OI as in you’d like to know the number of buys and sells? This will be equal, remember for every buy there has to be a sell, and that will create 1 OI position.

  156. VIVEK CHAZED says:

    Sir,

    If I’m hedging my portfolio by going short on nifty futures and market move upwards then I’ll be losing on opportunity cost (my profit is capped). If yes then can it be avoided?

  157. ajay says:

    Hi Karthik,Kindly help me to resolve fallowing doubt..
    1. HOW TO CHECK &WHERE TO CHECK LONG SIDE POSITIONS ARE BUILDING UP FOR A STOCK(IN FUTURE CONTRACTS)
    2.HOW TO CHECK BID&OFFER DIFFERENCE IS BUILDING UP?

    • Karthik Rangappa says:

      1) You cannot check only for long or short side position built up. You need to combine the OI and price and make an inference
      2) If you want the regular bid and ask, then you can invoke this using the regular market watch.

  158. rajesh says:

    Thanks for clear explanation
    Please clear my doubt
    Is technical analysis and fundamental analysis are less important in futures?

  159. jyotshna says:

    When particular shares are in ban period, it is in futures or option or both. And if it is in option only then it is for particular price or at any price new order can’t be placed ?

  160. Sarthak Laddha says:

    How to add open interest line in chart showing the effect increase and decrease in open interest like OBV does with volume?

  161. RAJAN . A.T. says:

    Sir,
    As I have mentioned earlier, I am a newbie in stock market dealings . At the age of 65, after retiring from a small scale industry , I contacted and got registered at Zerodha.

    I feel quite put back to raise my doubts. After making continuous LOSS for the last 2-3 months of trading, I got the guts to put forward my DOUBTS.

    When I click on market watch, some important data is opened. BID , OFFER columns Bid volume & offer volume Out of this which is Buy volume , Sell volume ?

    Total traded volume is also given . For selecting trading option Which volume I have to consider ?

    When I open NIFTO 50 option chain showing CALL & PUT options , what are the helpful data I can collect from it to short list my INTRADAY / SWING trading stocks ?

    Please clear my above doubts. I am REALLY SORRY if my above doubts are found SILLY. Kindly answer my doubts.

    Regards,

    RAJAN A. T.

    • Karthik Rangappa says:

      Sir, firstly welcome to Zerodha!

      This forum is meant to ask questions and learn from each other, so please don’t hesitate to ask questions.

      1) Have explained the Bid-Ask and other details here – https://zerodha.com/varsity/chapter/the-trading-terminal/
      2) You should consider the volume of the spot or the underlying
      3) If you are doing intraday trading with options, I’d suggest you blindly stick to trading the ATM option as it has maximum liquidity. I’ve explained what ATM option is here – https://zerodha.com/varsity/chapter/moneyness-of-an-option-contract/

      • RAJAN . A.T. says:

        Sir,
        Referring your above reply regarding my query “If you are doing intraday trading with options, I’d suggest you blindly stick to trading the ATM option as it has maximum liquidity. I’ve explained what ATM option is here – ”
        For ATM strike option normally the premium amount is high . As I am new I can only trade on premium less than Rs 15/- X a lot of 75 = 1125/-
        Should I trade Other OTM option in intraday trading ? As of today 18-01-2018 Nifty option chart shows 10800CE as ATM and the corresponding premium is Rs 61. 20/-
        Here I could not afford a trade like this .
        Is it because that I have not understand the trading method properly?
        Where & how I went wrong?
        kindly reply sir.
        Regards
        Rajan A. T.

        • Karthik Rangappa says:

          You should not select the option strike based on the Rupee value it is trading at. The trade should be backed by reasoning. I’d suggest you avoid trading till you get comfortable with the logic.

  162. INTEKHAB ALAM says:

    Does Open Interest affects cash stock?

  163. Ankit saini says:

    Hello sir,
    Sir, I have an question about open interest in option market. Today at 18th January Nifty underlying is at 10880.
    I generally play open interest from perspective
    Today I am watching Nifty option chain for February expiry and for a particular otm option the open interest iS at 1 2 5 7 6 0 0 that lot of sellers expecting that market will not cross that otm and that otm never be turned itm option and option will expire worthless this is justified its ok
    But for 10800ce ITM option 10800 Strike open interest stood at 2500k
    Now I want to ask you that why sellers agree to enter into this strike option.i know that they received premium.but are they don’t know that there’s a high amount of volatility involved right now and premium received by them can be wiped out easily and their positions can be turned into loss making
    I want to know that if someone enters into an contract whether he is buyer or seller what he is thinks about market in ITM,ATM or otm
    Right now I am just able to understand the open interest from buyers perspective and my thing process is simple as this:-
    If market is increasing so but should be interested to enter into the contract specially ITM OPTION
    BUT WHY SELLERS AGREED TO
    ENTER INTO ITM OPTION CONTRACT
    I request you Karthik sir please focus of your answer on seller’s perspective for an ITM option, why he entered so
    Thank you sir

  164. Ankit saini says:

    Hi sir
    I makes lots of spelling mistakes while writing sorry for inconvenience

  165. BHARAT says:

    sir u r doing excellent work thanks for that

    my question is, what is the right option for bullish trend (a) whether to buy call option or (b) to sell put option. what generally people do.

    • Karthik Rangappa says:

      Always, option buying will be a better deal – this is assuming you are very sure about the directional movement of the stock.

  166. Kinjal Ghoshal says:

    Is there a metric that shows the number of parties involved on the long or short side?

  167. Kinjal Ghoshal says:

    Is there a metric which indicates the number of parties that are involved on either side for each strike price in options?

  168. pratik says:

    Sir, how to know whether shorts are covering or shorts are building up? I have heard, especially on expiry (thursday for bank nifty) when shorts gets covered price goes up or vice versa. But i dont know how to find such data. Please tell me where i can get data regarding shorts covered or build up..! Is it available on kite?

  169. santoshsoni says:

    sir/madam

    how can we calculate net to net position of a future contract like there are long to unwind or shot will cover remain by the end of the series …??????

    • Karthik Rangappa says:

      Hard to calculate this, comes mainly from experience. However, indicators such as RSI (overbought/over sold) gives us a hint of such likely activity.

  170. ARUN says:

    Hello sir,
    I see that there are 211 company which are trading in futures. Can u plz tell when the NSE update its list…?? I mean yearly or half yearly?

  171. Rahul says:

    Sir I have one quarry….as m new in derivatives so just wanted to know few thing….1) Most of the time we see negative sign (-) / minus sign (-) in option chain specifically in OI Column….can u please tell what does it mean…? 2) Another thing I want to know….are there any limit of contracts that can be traded against each strike price…? I mean how many contracts can be traded against each strike price..? Is thr any limit..?

  172. Prakhar says:

    What is meant by call/put writing and call/put unwinding.

  173. Chethan says:

    Hello sir
    I have recently opened an account with Zerodha with an intention of trading, i have been transacting in equity market for quite some time,i am planning to start trading in derivatives hence i have few doubts can you please clarify??
    1.Can i trade in Futures by referring to spot market charts or should i refer to future contract charts to take a decision for trading future contract??
    2.Suppose if i have to look for future contract charts being a position trader what is the chart period i have to look for??
    3.And while referring to indicators in future contract chart what is the period should i consider??since the chart data available will be for one month or two month based on the contract type
    Eg: Should i consider 14 periods for RSI or less than that.
    4.Which contract to trade for should i consider the near month,mid month or the far month??what would you suggest for a beginner like me??

    • Karthik Rangappa says:

      Welcome to the Zerodha Family, Chethan 🙂

      1) Yes, you can. In fact, this is the right approach to trade futures.
      2) If its intraday, look at 10 or 15 mins charts. If its overnight, look at EOD chart
      3) Apply indicators on spot, not futures
      4) Near month has maximum liquidity, so I’d advise near month.

  174. Sadaf Faizi says:

    Sir,
    Does OI give a clear idea of short interest of F&O?

  175. Aishwarya says:

    Hello Sir,

    The last lines in the above chapter -” Updated : 24th Aug 2016 – If you use intra day OI information as a critical input for your trading strategy, then you should read this before you trade.”

    Unable to open the file “read this”. It says under maintenance. Can I access it in some other way sir???

    Thank u sir
    Aishwarya

  176. Shankar says:

    Hi,
    Where can I get real time data on open interest for Intraday trading? I searched both kite and Pi but could not find it. Please help.

  177. ALM says:

    Hello sir,
    can i buy 1 lot of nifty futures in preopen session???

  178. Shyam says:

    Dear kartik,

    How does one find out stocks where there is heavy call writing??

  179. ram says:

    suppose today market close and hindalco price up by 4rs and open interest up by 22% then what is activity for next day should i
    buy hindalco call or put. please suggest

    • Karthik Rangappa says:

      If both OI and price has increased, then it suggests that the price is likely to go higher over the next few trading sessions. Please note, this is just empirical, there are no guarantees in the markets.

  180. Manjunath says:

    Hi,
    Mr Karthik Rangappa,
    What is meant by Short/Long Covering in Futur/option market and why if OI decrease the price will Increase/decrease and visaversa, on what condition it will happen. Kindly explain.
    Is there any website that tells about the live market Change in OI / Chage In Volume / Chage in Prise in one screen of all F&O stocks.
    Thanks in advance
    Manjunath S

  181. Sougata says:

    Varsity is absolutely amazing work by Zerodha. But I want this work should ceaseless.Zerodha community should update Varsity portal on regular basis.So that Zerodha clients get benefited by some new knowledge everyday.

    • Karthik Rangappa says:

      Sougata, the comments are updated everyday plus new chapter is updated once in 10 days. So it is quite active.

  182. abhishek says:

    Hi,
    If you can please explain the recent changes in the rules made by sebi regarding Futures market like
    1) MWPl
    2) Physical settlement of some stock futures. And how physical settlement will be done.(sebi has recently released a circular that had 46 stock futures that will be physically settled)
    3) I also read that sebi wants to limit retail traders from derivative market. What are the rules who will be eligible?

  183. Hina says:

    Sir ,once a futures contracts comes into market, that is, someone sells it and someone buys it, then until the expiry the contract cannot vanish from the market, right? I mean both the seller and the buyer can transfer their risks but until the expiry the contract will exist in the market. Am I right ?

  184. upenndra says:

    Hallo sir , thanks for providing us such a valuable content ,
    sir may you plz tell me that from where i can get the historical data of daily script wise change in O.I. , like its given in o.i. spurts on nse website for the privious day , so where could we gate it historical data

  185. NITIN says:

    where can i check change in OI intraday? ( graphically)

    • Karthik Rangappa says:

      I’m not sure where this is available graphically, but NSE publishes the change in OI on a contract to contract basis.

  186. ASIT KUMAR NAYAK says:

    Thank You Zreodha. I gain something.

  187. Pramod Doke says:

    Karthik ji first of all I am very thankful for this world class material for stock market.

    Que-1
    How SGX nifty futures can be trading before underlying start trading i.e. Nifty 50

    Que-2
    Also recently SEBI has announced that derivative market can be kept open at the discretion of stock exchange till 11.55 pm.
    My question is how derivatives can be traded while market is closed.

    Thank and regards

    Pramod

    • Karthik Rangappa says:

      1) That is just a derivative of Nifty, so no problem with that
      2) Well, derivative can continue to trade but will get adjusted when the normal spot opens up.

      • Pramod Vasant Doke says:

        sorry sir for repeatative questions but i have doubt as follows.

        Q-1 Then how the price can change without change in underlying..(nifty india)
        Q2- Means you are saying that there won’t be any movement in premiun after 3.30 pm. as spot market is close but the premium may change due to other option greeks.

        thanks and regards
        pramod

  188. Abudhar al Hassan says:

    Hey Karthik,
    So…just finished reading the module, a second time, just to be thorough with everything. Great write up as always! Planning to start trading futures ASAP after allocating sufficient funds. Would appreciate your advise on the following:
    1. How much minimum capital do you think is required to start trading futures? This I am talking positional trades and not intraday.
    2. I am sure you must have open positions in your Zerodha account. Since we don’t have a GTC/GTD feature in Kite or Pi, how is it that you set your stop losses for your open positions? Do you log in every morning and set your SLs or is there a workaround to this?
    3. And why doesn’t Zerodha offer any GTC/GTD feature while many other brokers are? Imagine if you are positional short term trader and you have 10 open positions. You must log in everyday to set SLs for all your open positions? That’s one huge shortcoming and not to mention pretty tedious for a trader. I know NSE doesn’t allow this but then many brokers are providing automated workarounds for this.
    4. Lastly, is it possible (with Zerodha) to get continuous chart data (let’s say 6 months) of any future contract, without having to look at it’s respective underlying?
    Thanks for your help.
    Regards,
    ~Abudhar al Hassan.

    • Karthik Rangappa says:

      1) The minimum margin is about 65K for Nifty futures. Stock futures varies between 60K – 1.5L. Apart from the margins, its good to have some buffer capital to accommodate for daily M2M.
      2) Yes, we have to log in every day and place the SL/target order. Unfortunately, no workaround for this, yet.
      3) I understand this is one of the things on our to-do list
      4) Yes, this is possible. Open the chart in Kite, click on Display, scroll to chart preference and click on continuous data

      • Abudhar al Hassan says:

        Thanks Karthik, desperately needed continuous data. Thanks for the help.

        Regards,
        Abudhar al Hassan.

      • Abudhar al Hassan says:

        Hey Karthik,
        Hope you are doing well.
        I am trying to trade equity futures (positional trading on a daily time frame) with a capital of 1Lk (94k actually) taking a 1% calculated risk per trade. However, whenever I analyse the underlying stock to initiate a trade, the SL (usually near to a S&R) turns out to be way more than 1% of my capital, leaving me no option but to trade equity intraday (which I don’t want to).
        1. Could you please advise whether it would b wise to increase the risk percentage?
        2. If not, then what else can I do to trade futures (other than increasing my capital)? Would it be correct to analyse intraday time frames (15mins or 1hr) for positional trades (asking because that would reduce my SL placement) ?
        3. How do we draw S&R(s) with respect to price gaps? Should we consider the gap or ignore them?
        4. Had requested this earlier, but requesting again…anyway you could setup a module on intraday trading (with live videos perhaps)?
        5. Please provide GTC/GTD orders in Kite or Pi? Pretty please… 🙂

        And finally, thank you very much. I know..lot of questions…I am sorry (please don’t be mad) 😀 .
        ~Abudhar al Hassan

        • Karthik Rangappa says:

          1) If you are increasing the risk percentage by force, then you are already adding an element of stress, which you dont want 🙂
          2) Have you checked MIS option?
          3) Consider them but go about plotting the S&R in the same way as you would
          4) Will try to so that
          5) This has few tech constraints, we are on it 🙂

          Please feel free to ask as many questions as you want. Anyway, sincere advice – start with small quantities of equity, build capital, and then move to futures.

  189. Ritesh says:

    Dear Karthik,

    In the above chart of trader’s perspective with respect to changes in the OI and prices
    Price OI Trader’s Perception
    Decrease Decrease Longs are covering their position, also called long unwinding
    Increase Decrease Shorts are covering their position, also called short covering

    I understand when Price are Decreasing then the market is on Bearish side and Shorts must cover.
    and when Price are Increasing market is on Long side and expecting reversal so Long covering.

    Please correct me and thanks for clearing my doubt.

  190. Ashutosh tiwari says:

    i have one doubt..does oi data in lots or number of contracts. for eg,if oi for nifty is 1 does it mean qty is 1 or 1 lot i.e 75 shares

  191. Shyam says:

    please see below link of nifty option chain

    https://drive.google.com/file/d/1xpdNPO1ITMM7Lr8RYtieO5BM7gstRhwk/view?usp=drivesdk

    Apologies there seems to be some issue in prnt screen button in my laptop.

    After going through this chapter My analysis for Nifty tomm.

    Please advice if my thought process for analysing the market is right or wrong.

    CALL Strike prices( 10400,10450,10500) Premium and OI are down – > This means traders are covering their long positions. As and when this is done prices are under pressure and there will be further fall in premium

    CALL Strike prices( 10550,600 and 650) – Premium falling and OI increases – which means short positions are buiding up and prices may fall further.

    Like wise in puts ( Strike price 10400 to 10650) OI and price are increasing which means there will be increase in put prices

    Looks to me the market will slide further tomm. Apart from this prices are below 4EMA , 18 EMA and 50 EMA.

    Range of nifty:- ATR is 99 – Which means upper range is 10756 and lower range is 10558 .So nifty may trade in this band tomm.

    • Karthik Rangappa says:

      Shyam, the premium reduces as your traverse from ATM to OTM. Likewise, when you traverse from OTM to ITM, the premium increases. This is true for both calls and puts.
      About the range – yes, I would think so 🙂

  192. abhijith says:

    Hi Karthik/Kamat,

    1. Can one buy 5% of open interest at a particular strike price say 10700 CE current month?

    2. What is the position of expiry of in the money options now after some nse circular? Is the high STT thing of the past? Eg. 26500 BN CE I buy say 40000 (5% of open interest at this strike) at Re.1 and it expires at Rs.3.5. What is the position?

    3. Is day’s Options trading profits allowed as margin for intraday trading for the same day?

  193. Aslam Randhanpara says:

    Hello Sir,
    i want to give one suggestion to Zerodha that
    i have read a book “Alexander Elder – The New Trading For a Living 2014 ” where the the Trade Journals and Record keeping is explained in details so in zerodha is there any option to keep that things in app or any software so that we can keep each and every record of our trade and get to know about the self trading pattern.

  194. Kanika Agarwal says:

    Hello Karthik,
    What does it indicate when a stock shows an increase in Put Open Interest with a decrease in price and an increase in Call Open Interest with an increase in price? IMO, it means that people are going long on CE and short on PE which means a bullish trend. Please correct me if I am wrong?

    • Karthik Rangappa says:

      Increase in Put OI + decrease in price = Bearish outlook
      Increase in Call Open Interest + increase in price = Bullish

      These are empirical observations in the market, Kanika. No concrete science backing this.

  195. v nagarajan says:

    How to interpret change in open interest.

    • Karthik Rangappa says:

      Its best you look at the change in OI with respect to change in prices. I’ve discussed this in the chapter.

  196. Sanchit says:

    In derivative Bhavcopy, there is a column : Contracts( column K). What is this and significance?

  197. Sanchit says:

    On NSE website there a link which also tells Stock wise OI
    https://www.nseindia.com/products/content/equities/equities/oi_spurts.htm

    Why they are different from Bhavcopy- Change in OI and what does these numbers signify.
    What is the difference between By underlying and By Contracts?

    • Karthik Rangappa says:

      They cannot be different, Sanchit. I’d suggest you check with the exchange if you spot a major difference.
      By underlying – is going by individual stocks
      By Contracts – is going by the contracts (lot sizes)

  198. Bala says:

    Hello,

    Can you provide some insight on Roll over option used in futures using an example?

    Thanks,
    Bala

    • Karthik Rangappa says:

      Rollover is very straightforward – you close this month’s position and initiate the same position in the next month’s contract. For example, if you are long 2 lots of Nifty Futures July contract, you close this contract and buy the August contract….effectively, you are continuing on your view.

  199. Swapnil says:

    Hi Karthik,
    I have a question on commodity market.
    I am actively participating intradaytrading in nickel and copper, since it quite volatile counter often i face sl hit. Could you please advise what sort analysis we should do for setting up SL. Also evening session would be better for commodity trading ( Considering US market and data)
    Thanks in advance.

  200. Mitesh says:

    there are instances in which OI change is say 4,00,000 but volume is 1,00,000. can it be that volume is lesser than OI change ? please explain with eample

  201. venkat says:

    What are the indicators for OI trending / tracking at Zerodha Kite?

  202. Vamshi says:

    Hi kArthik,
    Why the option call premium decays even after the spot price is more than strike price for some stocks….

    • Karthik Rangappa says:

      This usually happens when the volatility is cooling off from elevated levels. Remember, when all else equal, when volatility increases, the premiums increase, when vol cools off, so would the premium.

  203. SANDEEP says:

    SIR, THANKS
    you explained it with much simple way..

  204. Suresh says:

    Hi Karthik,

    Yesterday, OI of OCT NIFTY 11500 PE has increased (..suddenly ) by more than 500% with hardly any change in the price of NIFTY ; How could we interpret this ?

  205. CHIDAMBARAM V says:

    Hi Sir,
    1. Why a stock is banned when the OI crosses 95% MWPL. What is the reason for doing so?What would happen if it is not banned even after crossing 95% MWPL?
    2.Why do F&O stocks don’t have circuit limit?What is the reason for not setting a limit for then?
    3.If a stock is banned in F&O since because it has crossed the 95% of MWPL, then will its underlying have a circuit limit?
    4.I have read somewhere that only swing/position trading after a Ban of a stock will lead to a penalty of Rs.5000.But when a stock is ban period, you will be able to do Intraday trading without any penalty since it does not change the OI. Is it true?Or does it depend on brokers (Do some broker allow to do so and do some don’t)?

    I am wondering why didn’t you mention anything regarding F&O stock ban in this OI chapter and in entire Future’s module !!!

    • Karthik Rangappa says:

      1) One of the reasons could be that the risk increases systemically for everyone, hence no new position could be allowed
      2) These are the different mechanism to prevent a systemic meltdown
      3) Nope
      4) No broker allows, but if you manage to place a trade and that goes through, then there is a fine imposed.

  206. Sanjeev Thatiparthi says:

    In the futures pdf, Open interest section, it is mentioned.
    Price OI Traders Perception
    Increase ||| Increase ||| Bullish
    Decrease ||| Decrease ||| Bearish trend could probably end, expect reversal
    Decrease ||| Increase ||| Bearish
    Increase ||| Decrease ||| Bullish trend could probably end, expect reversal.

    Can you explain me the second and fourth point.
    When Price decrease and OI decrease, How will bearish trend end and will become BULLISH? When all traders are selling how will it become bullish?

  207. priyank jan says:

    the effort is amazing Kartik sir……m a very beginner to stock market but this platform allows me to learn a lot from this…..huge respect to uh sir…but sir I want to know as a beginner that only technical is enough for day trading or else something I need to learn….and one more question sir…aapke sb modules enough hai ya or kuch b khi se gain kr sktee hai sir…..and on what I should
    focus on fundamentals or technicals…because I want to trade in mcx so please guide me how do I start ……

    • Karthik Rangappa says:

      Thanks for the kind words, Priyank. Yes, technical is good enough for day trading. I’m quite confident that you will be in a much better place if you can read through these modules 🙂

  208. Srividya says:

    Karthik,
    Thanks for detailed explanations on various aspects of Stock markets, the jargons & how to read indicators.
    2) I am slightly confused on one aspect though. During the week of 10th Sep 2018, i was tracking quite a few stocks which as per the pattern of candlesticks for past 6 months & also the indicators like EMA, Alligator, should have fallen. However, mid-week, all of a sudden, they started moving up. That too quite dramatically. How should one understand or read this?
    3) When buying / selling Futures, should one be reading charts of Futures or of underlying SPOT, to identify signals & trading opportunities? And when we do read these signals, should we look at indicators of a Day / Week chart or hourly chart?

    Thanks
    Srividya

  209. Srividya says:

    Karthik,
    yet another query: What should one do when current month futures is trading at slightly lower value than SPOT & its fair value? And also when the fair value is EQUAL to SPOT price? The Mid month contract also is trading at not such a great premium & CMP of mid-month contract is below its fair value?
    In both case of current month & mid-month, OI has come down heavily (13% & 9 % respectively) but price has gone up slightly.

    How does one read these & set up their trading?

    Thanks
    Srividya

    • Karthik Rangappa says:

      All these variations gives scope for arbitrage trades, but you need to ensure the spreads are good enough to carry out the trade.

  210. Archit Gupta says:

    Hello Karthik and the whole team behind Zerodha.First of all I will like to take this opportunity to thank you guys for this wonderful initiative.Z Connect/Varsity etc are helping newbie traders/enthusiasts like me a lot.Actually I have a qs related to determining “Support and Resistance Using Options Open Interest Data”.I am stuck on this point.”Max/heavy OI on a given Call option indicates a possible resistance and max/heavy OI on a given Put option indicates an immediate support”for the underlying.Can you please decode it for me in simple terms why?What is the logic behind it.Different websites/forums have different angles to it.Please decode it for me.I am really stuck on this concept.Some websites are saying as option buyers are mostly retail traders and less experienced and proficient and option sellers/writers are more ex and proficient so if one has to bet,bet on the more ex and proficient side as odds of winning go up.Does it makes sense?Please decipher it for me.And please do explain in detail (if possible) why we take the given levels as resistance and support based on OI data.

    • Karthik Rangappa says:

      Archit, the general logic is that if a specific strike has a huge OI built up, then the chances of that strike (corresponding spot level) working as a support or resistance is quite high. Remember, this is just a perception and there is no real logic as such (have also indicted this in the article).

      • Archit Gupta says:

        Thanks a lot Karthik for that quick reply.Just one more very basic level query related to OI and Price analysis.If you have already answered this qs multiple times please provide me the link to it if possible.So my qs is when we say that,when the OI is going up and price is falling it is usually a bearish signal and when the OI is going up and price is also going up usually it is a bullish signal. What is the core logic behind it. As for every option/future seller there is a buyer as well.Is it due to the demand and supply rule or something.What am I missing here.How are we coming to this conclusion of more trades on the long/more trades on the short side scenario,when a seller equals a buyer.

        • Karthik Rangappa says:

          Archit, increase in OI means more positions are getting added. So the increase in OI with a decrease in prices means that prices are falling and traders are adding to the position….this implies strength in selling. Likewise, decline in OI means fewer positions getting added hence whatever is the trend in price, may not sustain through.

          Do note, these are empirical, so its advisable for you to backtest it once 🙂

  211. A MOHAMED RAFI says:

    Dear sir,
    nifty 50 index=11008.30
    nifty futures 25oct2018 =11061
    nifty futures 29 nov2018=11103.7
    is it possible to buy 1 lot of nifty
    futures 25oct2018 and sell 1 lot of nifty futures 29 nov2018 at the same time tomorrow.is it possible to do two trades at the same time? what will be margin amt?

  212. swamy says:

    How change in OI calculated…pls explain me…
    and how change in OI is important ?

    • Karthik Rangappa says:

      With every new position getting added to the market, the OI changes. The change in OI on a standalone basis is not so meaningful, hence traders associated change in price to this and draw conclusions. I’ve explained the same in the chapter.

  213. Bobby Joseph says:

    Sir,
    Could you please explain how come value of change in open interest be higher than the volume in option chain of nifty.?
    Thanks

  214. Binesh says:

    Hi Karthik,

    I have a couple of questions.

    a. Is there an upper limit on the amount of OI that can build up on a derivative. Is this controlled by the regulator?
    b. When you say increase in price in the tables above – Is it increase in premium price of the option?
    c. If premium price increases with an increase in OI, does it mean the underlying stock price also increases? Are they directly proportional?

  215. Nino says:

    In above table (ie. Tuesday count) I think Neha’s count should be 2S and in the Sell column. Not 8L. Correct my understanding that Neha is simply transfering her 8 position out 10 to John. So still she is short with 2 contracts.

    • Nino, I believe you misread the Buy/Sell column. It only denotes that the position initiated on Tuesday, which is 8 Buys, effectively to cover 8 out of the 10 short positions. The last column reads the contract held at the end of that day which is 2 Shorts.

  216. Sunny says:

    Hi,

    Can you guys add greeks data points ( Delta, Theta, Gamma, vega) in the options scrip price by creating a tab along side. This would really help. if not all, delta is must.

    Upstox has same features…

  217. Sandeep Aggarwal says:

    Hi

    Is it possible to check change in open interest in real time. Suppose at 10.00 AM, there are 2000 open contracts. At 11.00, these are changed to 2200. So there is change of 10% in OI. Now at 11.30, these contracts are changed to 2420. So again there is a change of 10% in between 11.00 -11.30. Is it possible to check open interest data this way.

    Thanks.

  218. Shyam says:

    hello sir,

    Happy diwali to you and team zerodha..

    Sir i have noticed oi of lt in dec and jan contracts are up by 300-500% and price is also increasing..now how to intwrpret this..if traders are bullish why not buy the current months contracts?
    Is it Indication of bullishness in long term??

    • Karthik Rangappa says:

      Thanks, Shyam! Wishing you the same 🙂
      Maybe the traders have a slightly long-term opinion on the stock. Btw, is it the Futures OI or Options?

      • shyam says:

        sir it is futures…even jet airways oi futures up by 100% in jan 2019 contracts.

        nov and dec jet airways contracts are up by 9-10 5

        how to interpret this?

        • Karthik Rangappa says:

          This explains. Perhaps, traders expect some sort of relief rally in Jet hence bought into 3rd-month futures. Evident with the increase in OI.

          • shyam says:

            Ok sir.

            But my que is why not buy current month contracts? is there any reason for buying far month contracts?

            or are they used for hedging purpose?

          • Karthik Rangappa says:

            Far month contracts have maturities 3 months later, so there is no need to roll over month on month.

  219. Amit says:

    Hi,
    In the above example, since Neha already went short on 10 contracts she held on Monday, then how come she has any contract left for Tuesday?

    Additionally, the below line confuses me as it seems she has already gotten rid off the contracts she held.

    Tuesday: Neha wants to get rid of 8 contracts out of the 10 contracts she holds, which she does.

    Please help me understand.

    Thanks,
    Amit

    • Karthik Rangappa says:

      Amit, the example states that out of the 10 short, she bought back (squared off) 8 contracts. By doing so she just transferred 8 contracts to John, so no new contracts are initiated, it is just a transfer. Hence OI remains the same.

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