Open Interest, MaxPain & Put Call Ratio(PCR)

August 26, 2013
OPEN INTEREST, MAXPAIN & PUT CALL RATIO(PCR)

OPEN INTEREST, MAXPAIN & PCR

Traders,

Open Interest, MaxPain and Put Call ratio are some of the most misunderstood topics amongst beginner/amateur traders; below is our attempt to simplify these concepts for you:

1.What do you mean by Open Interest (OI) in futures and options?

Futures and options are contracts and similar to any other contract it is a contract between a buyer and a seller. Buyer is bullish (expecting the market to go up) and seller is bearish (expecting it to go down). Only when there is trade between a buyer and seller, a contract opens and all such open contracts are together called as open interest. So if I have bought 1 lot of Nifty expecting it to go up and you have sold 1 lot expecting it to go down, that makes it 1 open contract and hence the open interest of 1.

Typically every derivative contract will have its own OI, Nifty August futures will have its own OI and September futures will have its own. Similarly, OI will be different for calls and puts of various strikes.

2. What would you infer if someone said “Nifty futures went down with a huge addition of OI?”

OI will go up when more people start participating or existing people start adding positions. According to the OI theory, typically when a market is going in a particular direction and there is a huge addition in OI, this means there is more conviction in the move.
So if the market is falling and there is a huge addition in OI, this would mean that the existing short positions which are making profits are adding more and hence the fall could be bigger. But understand that this is only theory and may or may not work like this in reality.

3. What would you infer if someone said “OI on Nifty 5600 calls went up significantly?”

While trading options, the money required to buy options is much lesser than what is required to write (sell first). So typically the people who write options are people having access to higher capital and hence the logic is that they are more proficient traders.

I guess it is important to also understand why retail traders typically buy options and institutions sell them?

Retail traders are always looking at buying options because technically you have chances of making unlimited profits with investments of small premiums, very similar to how lottery tickets work. What a retail trader forgets to look at is the fact that the odds of winning are much lower than when you are writing options. Yes when you write/sell options the profit is limited and is probably just a fraction of the margin that is blocked for writing, but the odds of winning go up significantly.

Assume that Nifty is at 5550 and A buys the 5500 call at Rs. 100 as he is bullish and B who is bearish and expects the Nifty to be lower sells it at Rs. 100.

Since A is buying Rs. 5000 (50 x 100) is debited from his trading account and since B is writing options (around Rs 25000 is blocked as margin). A can make unlimited profits from his Rs 5000, but B can make a maximum of Rs 5000 from the Rs 25000 invested. But check out the odds and see which side you want to be on.

For A to win at Expiry: Only if Nifty is over 5600 (5500 + 100 invested into the call option)

For B to win at Expiry: Nifty stays where it is, Nifty goes below 5500 and Nifty goes up but stays below 5600, he can make profits in 3 different scenarios compared to an option buyer who can in only 1 scenario.

As you will see the odds of a writer winning are higher. But also understand that as a writer of options you take unlimited risks and being lax on risk management would mean a severe dent to your trading account. Since you need access to higher capital for making limited returns with increased odds, option writing is what typically professionals/institutions prefer.Historically, it has also been proved that option buyers lose about 90% of the time.

Coming back to the query, when OI for 5600 calls is going up, there are new buyers and sellers (writers) coming in and since the writer is a more proficient trader as explained above, the belief is that he is probably right and better be on his side of the trade which is basically expecting Nifty to not cross 5600.
So if someone says OI on Nifty 5600 calls has gone up significantly, according to the OI logic it means that if Nifty is above 5600 it might come below 5600 and if it is already below 5600, it might find it tough to go above 5600.

4. What would you infer if someone said “OI on Nifty 5400 puts went up significantly?”

Similar to the explanation given above, since OI is going up on 5400 puts and because the option writer is more proficient generally, the belief would be that the market won’t probably go below 5400 and if it is already below 5400 it might bounce back above 5400.

5. If I sell 2 lots and there are 2 people X and Y who have bought 1 lot each, assuming we are the only people trading the contract, the OI is 2. What happens if X who has bought 1 lot sells it to another person Z, what is the OI now?

When X sold the lot he had bought from you to Z, a new contract was not created; the existing contract just changed hands so the OI will remain two.But if Z bought say 1 lot from anyone other than X and Y, then that would be a new lot and hence the OI will now go to 3. Since in the query above a new lot was not created, the OI remains at 2.

6. If the market is going down and OI is increasing market could go even lower because of the OI logic. But aren’t both the buyers and sellers increasing, why can’t we look at it like new buyers are coming in so the market might reverse?

Assume the OI is presently 10 on Nifty futures and Nifty is at 5500. This means there are 10 lots long and 10 lots short. The market came down to 5400, so the buyers together have a loss of 50,000 (10 x 5 lots = 500 Nifty x 100 points = 50,000) and the people who are short have a profit of the same.

At 5400, OI went up to 20, basically doubled. When OI went up, either the people who were holding positions from before added or new people came in and bought and sold lots. If you were looking at all of this, which side would you want to be on, long or short?

Understand that at 5400, longs are sitting at 50,000 loss and are weak and shorts are sitting on 50,000 profits and are stronger. The most important logic to make money in the market is to be with the trend, be with the person/stock who is stronger. That is why we infer that if OI went up significantly when market goes in a particular direction, the direction might continue for much longer.

7. Logic behind assuming that if the OI for 5600 calls went up significantly, markets might not cross 5600?

Let me give you an example, assume you are sitting in an exam on financial markets and there are 2 people sitting next to you. One is Nithin who has almost 15 years of experience in the domain and on the other side is this boy called Siva who is just 2 years into the business and still confused about what the business is all about. If you had to copy, from whom will you copy, Nithin or Siva? πŸ™‚

The whole theory of Open Interest conspiracy on options is based on the fact that the buyers of options are mostly retail who are probably not experienced (similar to Siva in the above example) and the sellers/writers are institutions who are more proficient and have been doing it for a while (like Nithin). So if you had to bet, be on the same side as the proficient one because the odds of winning go up.

So when the OI for 5600 calls is going up, there are new buyers and sellers coming in and since sellers are more proficient traders we assume that they are right and hence the market may not go above 5600.

This is all a theory and may or may not work in real life, but we at Zerodha proprietary trading desk believe it works and are also planning on a tool to help all our traders to track the OI to know what direction the professional traders are in.

8. What is the “MaxPain Theory” in options?

This is again a theory based on the fact that option buyers are retail traders who typically always buy options whereas option writers/sellers are professionals/institutions who have a higher chance of winning, and typically the professionals/institutions will have a higher chance of making profits.According to this theory the underlying (Nifty in the above example) on the expiry day will gravitate towards that point at which option buyers will feel the maximum pain, basically a point where the maximum number of options, both calls and puts value could become zero (worthless) on the expiry day. To calculate this we need the open interest of both calls and puts for various strike prices(Nifty in this example) and use a correct formula to calculate the MaxPain point.

Though the theory sounds like a conspiracy, if you look historically MaxPain has proved to be a leading indicator predicting a fall/rise in the markets provided you have considered only the relevant strike prices.

Once you have a formula to calculate MaxPain there are 3 ways in which you can use it for trading, assume Nifty is presently 5500 and MaxPain is showing 5600.

a. You can setup strategies assuming that Nifty will go towards 5600.

b. You can use this for position management, which means that if Nifty is below the MaxPain, take larger buy positions than short positions, because we are generally expecting Nifty to go up. Similarly if Nifty is above the MaxPain, take bigger short positions than long ones as you expect the market to come lower towards the MaxPain.

c. Keep tracking MaxPain and anytime there is a big move, either up or down, use it as a buy or sell signal respectively.

We at Zerodha are looking forward to providing you a tool to track a proprietary strategy of MaxPain for Nifty on our new website. This tool can then be used in any of the 3 ways mentioned above.

9. Put Call Ratio (PCR)?

As the name suggests, it is the ratio of all the Puts/Calls traded every day. If the ratio is more than 1, it means that more puts have traded during the day and if it is less than 1 it means more calls traded during the day.

To trade based on PCR; you will first need to collect historic PCR to know the extreme ends it can reach. NSE shares this information on this link daily. Assume that this average range for PCR over the last 1 year is in between 0.7 and 1.3.

Like MaxPain, PCR is also a contrarian strategy which believes that option buyers will typically lose money. So a typical way to analyse PCR would be:

a. If PCR is below 1, it would mean that more calls are being traded and since more calls are being traded by the retail traders (option buyers) this could mean that the markets might do the opposite which is go down. Lower than 1 the PCR is, higher the chances of the market coming down. Since you know that historically PCR has been in the range of 0.7 to 1.3, at 0.7 PCR the chances of the market coming down will be the highest.

b.If PCR is above 1, it would mean that more puts are being traded and since more puts are being traded by the retail traders (option buyers) this could mean that markets might do the opposite which is go up. Higher than 1 the PCR is, higher the chances of the market going up. Since historically PCR is in the range of 0.7 to 1.3, at 1.3 PCR the chances of market going up will be the highest.

Happy Trading,

Nithin Kamath

CEO @ Zerodha and partnering startups through Rainmatter to help grow and improve the capital market ecosystem in India. Love playing poker, basketball, and guitar. β€œYou don't have to be a hero to accomplish great things---to compete. You can just be an ordinary chap, sufficiently motivated to reach challenging goals.” - Edmund Hillary

175 comments

  1. svasudevan05 says:

    How to calculate max pain now.
    When to expect tool in web site/platform.

    Lastly thanks for this write up and hope you will provide many more such articles for mutual benefit(we gain and trade more and you get more brokerage)

  2. Nithesh says:

    Very Useful Information.. Thanks.

    I have one doubt Sir. If I bought & sold one lot of Nifty on Intraday, But I don’t know whether I Bought & sold to same person. What will be the OI change. Please clarify.

    • Nithin Kamath says:

      There is no way for anyone to know if when we are buying/selling who the other person is. The only way to track the OI is from the NSE website and we also provide this detail on the ZT terminal. What you can track is whether the net OI for an individual contract is going up or down.

      Hope this clarifies.

      Cheers,

      • Salil Hemant Sane says:

        I have checked on the column options available. There is no “OI% change” column to add to the default tab. It only has “Open Interest”. Knowing the percentage change and price rise and being able to filter it for all NSE F&O stocks on a single click is very important. The default tab requires manual addition of each F&O scrip of a certain month. Ideally ( just like in Sharekhan TradeTiger ‘s One Click Filter ) , I should be able to select March expiry and a table should appear showing sorted scrips with highest OI% change at the top OR highest price change.
        If this feature is already available but I am unaware, please advise me.

  3. svasudevan05 says:

    Where to find change in OI from terminal intra day
    Thanks

    • Hanan says:

      There’s multiple ways to find the OI on your terminal:
      1. You can add it to your market watch by right clicking on your market watch column profile and choosing “Reposition Columns”. You can add Open Interest from here.
      2. You can view OI directly in F6 or Snap Quote.
      3. You can press Ctrl + Alt + D to view multiple option scrips and their OIs in one window. πŸ™‚

      Enjoy!

  4. nizsohoney says:

    Where can I find PCR for Nifty Options (only) daily or for a particular day?
    Thanks

  5. Sara says:

    On Expiry day all contract come to end with cash settlement, but end of the day still open interest show it,how?
    August contract come to end on 29th Aug, at the day end of 29/08/2013 Nifty Future Open interest show as 1,49,55,200. What it mean by?

    • Nithin Kamath says:

      Sara,

      If you are checking for the Aug futures open interest after market closing, it will basically be showing the last OI before closing of the contract. But yes, all OI will become zero after expiry for AUG futures.

      But if you are looking at general Nifty Future OI, there will be Sep futures and Oct futures which will be open at the end of Aug futures.

  6. PDonnaD says:

    when the expiry is near, does the market moves according to professionals/institutions volume on OI or they move the market by generating new positions in other strike price’s. Or the market moves according to itself the we including professionals/institutions, all calculate the exact ending price during expiry.

    • Nithin Kamath says:

      Max Pain is a theory and may or may not work the way it is mentioned. Market moves according to itself, but more often than not tends to go towards the point where it can hurt the options buyers the most.

  7. Gyan says:

    Dear Team

    Currently nifty is at 5680. It has appreciated by 300 pints in last 3 days. Today data shows
    nifty index future OI increased by 1.74%
    nifty 5700 call -OI increased by 5.37%
    nifty 5800 call – OI increased by 4.20 %
    nifty 5900 call- OI increased by 0.04%
    nifty 6000 call – OI increased by 6.09 %

    So what I should infer by OI theory? – nifty won’tpass 5700/5800/5900 or 6000 ,since OI of all respective call have increased!

    rgds
    Gyan

    • Nithin Kamath says:

      Gyan,

      Nifty future OI hasn’t gone up significantly, so this suggests even though there has been a big move it is not backed by huge OI addition, so may not be a convincing move.

      For options, you need to track both the calls and puts OI, just calls won’t be enough. But if a lot of calls are being written, then ideally according to Max pain theory, market will not go up much.

      Cheers,

    • RajashekarRao says:

      Can you please guide to get the calls OI and put OI in terminal…..

  8. param says:

    Hi,
    I just noted that for the option contracts data, zerodha does not have greek variables (delta, theta etc). Will we get that data in zerodha?

    • Nithin Kamath says:

      Param, there is a link called option calculator where you can see this. This data will not be available on the marketwatch though.

  9. sachin03 says:

    Excellent and very well written article.

  10. dinsjoy says:

    what is maximum number of stocks we can trade in basket trading at a time?

  11. RajashekarRao says:

    Excellent and very good explanation. As you said Calls OI and Puts OI separation. Can you please suggest where we can get this Calls OI and Puts OI separately in terminal.

  12. satishreddy says:

    IF i take call sell position on expiry date, but i forget to square off
    if i had taken 5900 call sell which is trading @ 20 rs (sum amount will be blocked)
    at the expiry day nifty closed @5800 at the time the call sell LTP 23…but i forget to squareoff positions ….will exchange the settle or not ? is there any other charges levied ? and how i will get (blocked amount and premium )

    • Nithin Kamath says:

      Satish,

      If you have sold/short options and forgot to square off on expiry, the exchange settles the position based on how much in the money the option is. The blocked margin gets released on the same day after closing of the markets.

      there is no extra levy if you are short options.

      but if you are long options, the STT can go up significantly, check this blog.

  13. vidhya says:

    Thank you for a very informative article. Would it be possible to provide a pain calculator using excel? It will be of great help. Please advise when the new site will be launched.

    • Hanan says:

      We’re well on our way to creating our own Max Pain calculator which will be available on our trading platform and also our website. All of this will take a while to get implemented, but you can expect to see some results within the next 3 to 6 months.

  14. Sukesh says:

    Hi,

    MaxPain theory is very interesting.
    Is there any tool thats developed or in process of development to calculate maxpain?

    Also could you share some points from the back testing results that zerodha conducted on Maxpain? How relevant is this indicator??

    Thanks

    • Hanan says:

      We’re working on some very interesting tools at Zerodha. The Max-Pain indicator is very relevant but there isn’t a tool that is developed that can give our clients realtime information.

      We’ll keep you informed on when we can make it available for you. πŸ™‚

  15. Harshvardhan says:

    Great article.
    Thank you for being so awesome, and sharing πŸ™‚

    Just wanted to know that is the maxpain tool up ?

  16. dins says:

    i wants to buy nifty future and some options on intraday basis, to know the total margin i checked our span calculator from trading platform (NEST trader). i saw three types margins there 1.required span margin (15429 inr) 2. required exposure margin(9274 inr) 3. total margin required(24703). which is the actual margin needed in my account or which type of margin ?

    • Nithin Kamath says:

      Have you seen our new margin calculator tool on WEB?

      Click for futures and SPAN, there is a small section on top of the futures page which explains all your query.

      Coming back to the SPAN calculator tool, total margin is what is required to trade futures for overnight and 40% of this is required if you wish to trade intraday using product type as MIS.

      Hope this helps,

      Cheers,

  17. satishreddy says:

    IN OPTIONS , FOR INSTANCE NIFTY SPOT IS TRADING 6000 , I AM IN THE POSITION OF 6200 CE SELL AT 10 RS PREMIUM…..SPOT NIFTY CLOSE AT 6100…AT THE TIME NIFTY 6200 PREMIUM IS CLOSED AT 12 RS …..IF TODAY IS EXPIRY AT THE 3:30 PM ..I FORGOT TO SQUAREOFF POSITION WHAT HAPPEN TO MY BLOCK AMOUNT( SPAN MARGIN + EXPOSUREMARGIN+ PREMIUM RECEIVED)?

    • Satish,

      If nifty closes at 6100 on expiry, 6200 calls value would be 0 and not 12 in any case. If it is 0, it expires worthless and you get to keep the entire premium that you received when you shorted and the margin is unblocked at end of the day. Perfect situation for an option writer, you don’t have to pay brokerage or taxes when an option expires worthless.

      • satishreddy says:

        what happend to 6100 callsell (it will become ITM contract)….for this strike price will be excercised or worthless…give me an example…if this stike price call sell closed at 20rs

        • Satish, if Nifty closes at 6100 exactly, 6100 call will call will expire with a 0 value. For 6100 call to have any value it needs to close above 6100. In any case, if you have shorted options and you don’t square off, the entire margin blocked gets unblocked after 3.30pm even if you don’t do anything.

          • satishreddy says:

            IF NIFTY CLOSED @6120…6100 STRIKE PRICE 20RS, PREMIUM WILL BE EXECRCISED OR WORTHLESS….AND MORE OVER 6100 STRIKE PRICE IS ATM 0R ITM(FOR INSTANCE NEXT STRIKE PRICE IS 6200)

  18. satishreddy says:

    1) IN OTIONS ….SPOT NIFTY IS TRADING 6000..IAM IN ITM CONTRACT 5900 CALL SELL, PREMIUM IS 100 RS…SPOT NIFTY IS CLOSED 6050 AT EXPIRY …@ THE TIME 5900 CALL OPTION CLOSED 150 RS AT EXPIRY…WHAT HAPPEND TO MY BLOCKED AMOUNT…IF I FORGOT TO SQUAREOFF MY POSITIONS, IS EXCHANGE WILL SETTLE, AND GIVE THE REMAINING MONEY?
    2) FOR ALL CALL WRITERS AND PUT WRITERS IN THE ATM,ITM,OTM, CONTRACTS… BLOCKED AMOUNT (SPANMARGIN+EXPOSUREMARGIN+PREMIUM RECEIVED) , WILL SETTLE OR NOT IF I FORGET TO SQUARE OFF MY POSITIONS

    • 1. Yes on expiry, your option would automatically get exercised and the margin that is blocked gets released to your trading account.

      2. Yes all options which are ITM or ATM will get exercised and the money is unblocked in your trading account. All OTM options expire worthless and margin automatically gets unblocked on the expiry day.

  19. Rahulr says:

    Hi

    What are the major differences btw Nest starter pack and Nest premium in technical charts ? And can i get Nifty live charts with Nest premium if not any other way to get Nifty live charts ???

    Pls Reply

  20. SS.Chauhan says:

    when can we expect OI tracker and Chart fix in ZT as it is time consuming to load charts and set them as required

  21. mangoman says:

    NIthin,

    Where is the max pain calculator? Is it implemented already?

  22. SanyG says:

    Been a long time since the interesting products are discussed here… can we have concrete timelines please. Oh btw, excellent article!

  23. SanyG says:

    Nothing gets done without putting a stake in the ground! without commitment! so look forward to the launch date of the interesting products πŸ™‚

  24. Pancham5 says:

    Where can I find the Put call ratio option for index on the trading platform

    • You won’t get put call for the entire index, you will get the OI for option strikes and you will have to calculate it yourself.

      Cheers,

      • SanyG says:

        Hi Nithin,
        Been a long time since the interesting products are discussed here… can we have concrete timelines please. Nothing gets done without putting a stake in the ground! without commitment! so look forward to the launch date of the interesting products πŸ™‚
        Oh btw, excellent article!

        • Sany,

          Sorry about the delay in tools, we suddenly had too much to chew at the same time, it is on our priority, but there are other important things on priority before we work on this. πŸ™‚ …

          Cheers,

  25. Madan says:

    Hi!
    Suppose im short on 6100 call at 90. On expiry, the call value closed at 30 and nifty at 6120. At what value the option gets exercised? Difference of strike and close or actual option closing? 30 or 20?

    I dont think its possible but only for understanding. Is it?

    Thank you

  26. sharan says:

    HI Nithin,

    where can i find OPEN INTEREST, MAXPAIN & PUT CALL RATIO tool in zerodha web site.?

    Regards
    Sharan.

  27. ajay says:

    hi nithin,
    I want to know nitti gritti of options , pls suggest me some must read on options to know them at micro level. thanks

  28. A Aggarwal says:

    Hi Nithin,
    Can you please explain what is considered as a good daily % change in Open Interest for Nifty Index Options/Futures?? As i read in an earlier post, even a 5% change in OI of an option in a day is not treated as considerable positive change to infer a strong sentiment. Please explain why?? And also if possible can you please define some range for inference. eg. 3-10% change in OI in a day is high but suggests a fairly strong sentiment, above 10% is very high and means a very strong sentiment, below 3% is low change and may not be considered much to infer a strong sentiment. Waiting to hear from you. Thanks

  29. Can you tell me where can i see max option pain in zerodha website or nest trader

  30. Ravi Kiran says:

    Dear Nithin, You posted this one almost 1yr back and is OI tool and Maxpain calculator available for zerodha clients? And also please provide option calculator…

  31. A Aggarwal says:

    Hi Nithin,
    Can you please explain what is considered as a good daily % change in Open Interest for Nifty Index Options/Futures?? As i read in an earlier post, even a 5% change in OI of an option in a day is not treated as considerable positive change to infer a strong sentiment. Please explain why?? And also if possible can you please define some range for inference. eg. 3-10% change in OI in a day is high but suggests a fairly strong sentiment, above 10% is very high and means a very strong sentiment, below 3% is low change and may not be considered much to infer a strong sentiment. Waiting to hear from you. Thanks

  32. RR2684 says:

    In the blog you have mentioned “Once you have a formula to calculate Maxpain …”.

    Is the formula available somewhere or do we have to develop it ourselves? In either case, where can we find this information?

  33. Vivek says:

    Hi Nithin,
    Currently, in 27-Nov-2014 series
    Nifty PUT option @ 8150 has huge change in OI % (% Change in Open Interest=20390.00).
    Nifty CALL Option @8150 has % Change in Open Interest=70.49

    If i apply the theory explained in this article,
    Since the PUT has high OI change than CALL, i guess nifty wont go below 8150. Correct me if i’m wrong.

    Also,
    Nifty PUT option @ 8200 has % Change in Open Interest=41.89
    Nifty CALL Option @8200 has % Change in Open Interest=64.86
    Here, Nifty CALL has high % change of OI than PUT. Does this indicate that nifty wont reach 8200?

    Thanks for a very well written article. I’m happy that i joined Zerodha.

    • You don’t look at the % change, but also the OI itself. Your logic of 8150 has a huge change in OI and also OI itself is highest, yes indicates that 8150 is a good support for the series. But you will need to track these closely, as they can keep changing rapidly.

      At 8200, don’t just look at % change, but also on the total OI itself.

      • Vivek says:

        27-Nov-2014 [email protected] CALL has OI=24,73,200 |change in OI=7,30,150|%change in OI=41.89
        27-Nov-2014 [email protected] PUT has OI=18,01,650|change in OI=7,08,800|%change in OI=64.86

        From these numbers can i say that shorters expect
        Nifty not to go up to 8200 as CALL has high number of OI than PUT?
        OR
        Nifty will go up to 8200 as the %change is higher but the OI of PUT is less than CALL.

  34. Vivek says:

    Nithin,
    Some questions reagrding PCR.
    1) Should I look for overall PCR of Nifty? or individual PCR of each strike?
    2) There is PCR of volume and PCR of OI. The above PCR theory explains wrt PCR of volume?

  35. Santanu mishra says:

    I got it that u have done hell, research and still cn2nw. But can u tell me what if the volume is same as OI,VOLUME IS LOW AS OI.VOLUME IS HIGH THAN OI.
    EX- 8200 cal volume 12000 change in OI is 120000
    8300 call Vol-12000 bt change in OI 1300000Γ—

    • You could say that since OI for 8300 Calls has gone up significantly, that means that many people are writing the 8300 Calls. The assumption is that smart money writes option, so that could mean that 8300 is a resistance for the market.

  36. Vivek says:

    Nithin,
    Is there any site where i can Nifty PCR?

  37. Vivek Saran says:

    Hi Nithin

    Applying the mentioned logic of highest OI act as support and resistance so what happens if in a stock which has highest OI on a strike of PUT option which is above the underlying , does it imply that it will go worthless during the expiry .

    thanks
    vivek saran

    • Vivek, yeah by the logic if you see huge OI on an ITM put option, you can assume that the stock is bullish and might go higher to the strike where the OI is more. But that said trading activity on stock options is quite less, so better to be conservative while making such assumptions.

      • Vivek Saran says:

        Hi Nithin

        thanks for the reply , I was referring to Karnataka Bank it is still having huge OI in 150 put options and since it was trading at 144 odd levels today opening so I made a position on the long side and it has paid handsomely , it has given a spike till 154 on intraday , I am still holding the call maybe if the 150 call option sheds OI today then I am assuming it will move towards 165-170 levels in this expiry.

        regards
        Vivek Saran

  38. raj rishi says:

    Nitin Ji,

    I was going through an article on OI, and found undermentioned line, but could not get it, kindly illustrate if possible

    “One complication involved when looking at the overall level of open interest in a futures market is the impact of deliveries. In a physically-delivered commodity, when delivery ultimately takes place the contract that has been delivered is no longer included in the overall open interest tally ”

    thank u.

  39. vasanth says:

    1) How can i track the OI changes during market hours for different nifty calls & puts? Whether any indicator/trend (Software) to plot the OI changes like volume trend? While trading in Nifty options, tracking Nifty futures open interest can give any useful information?
    2) How to calculate %change in OI?

    • Vasanth, 1. No tool as such available right now that I have seen available in India. We are planning to build something out though.
      2. You will be able to see OI on your marketwatch, if you know OI at yesterday close was 100, and today it is 110. This means the OI% change is 10.

      • Salil Hemant Sane says:

        Its very surprising that Zerodha does not provide a simple OI% change calculation in market watch. Yesterday’s OI data is available to them. Today’s realtime data is also available. What was stopping them to calculate %change in OI and provide it as a column for users ! ? Really frustrating

  40. CA Ravi Khanal says:

    Hello Nitin
    I am new to zerodha and currently has not explored it much .. majorly due to non compatiblity of major of Z Applications on Mac. Even Z5 doesnt work fine due to java error. I have tried keeping it in exceptions list still out of 10 times 5 times it goes unresponsive. Rest ZT and Pi doesnt work at all on mac.
    Anyways i wish if they were programmed keeping in view OS as well.

    My query is related with max pain.. does zerodha has any link or tool where by this can be viewed on real time or eod basis. I have read above that comment was in 2013 whereby it was said to be in pipeline. Since i could explore it much .. wish to know if it is available.
    .
    Regards

  41. Vivek says:

    Nithin,
    Is there any site where i can get the historical PCR value?

  42. ABHAY says:

    Dear Sir,

    Can I get Live PCR chart & data on your website or software?

    Thanks & regards
    Abhay
    9773135444

  43. Nayan says:

    A very insightful article indeed. Totally changed my whole perception of nifty options.
    Appreciate your help Nithin in this regard.

    The nifty as I see on 28th September stands with high OI at the 7800 PE and 8000 PE while high OI at 8200 CE and 8500 CE. Does this mean the “intelligent participants” feel that the market would probably not fall below 8000 – 7800 and not go significantly above 8200-8500 on the upside in this series?

    Would you suggest any other indicator that could be combined with PCR and OI data for trade confirmations Nithin? Thank you once again.

    Thanks
    Nayan

    • Nayan, trading volume is very important to track. If the moves happen with bigger volumes, it will be more convincing. If you are liking what you are reading, you should go through the options module on Varsity: http://zerodha.com/varsity/

      • Nayan says:

        This is a fantastic initiative Nithin by you and your team at Zerodha. Just read through Option Theory and it is a brilliant read.
        Cant wait to read the series on option strategies. Options have always been the black box for me, but thanks to your team I now know the basics of it. They indeed are a very powerful tool to gauge the breadth of the market.
        Any tentative date when the Option Strategies e-learning chapters would go online?

        Thanks
        Nayan

  44. Amol says:

    Hi Nithin,
    As you said the smart guys go shorting options in order to eat on premiums. As I look at the OI data, 8200 CE,8500 CE and 9000 CE have the maximum OI. I understand the 9000 CE has good amount of OI since they do not believe the market to touch 9000 soon. Hence the 9000 CE has been written. However why would they want to write the 8200 CE when the nifty is at 8000?

    Also at the PUT end, 8000 PE and 7800 PE have maximum OI. When the nifty is at 8000, why would they take the risk of shorting an 8000 PE and a 7800 PE which is so close to the current underlying price?

  45. rajasri says:

    Put call ration and OI explained in a very crystal clear manner. very useful for the beginners.
    Thank You Mr Nithin Kamath.

  46. […] Open Interest, MaxPain & Put Call Ratio(PCR) | Z-Connect … – Traders, Open Interest, MaxPain and Put Call ratio are some of the most misunderstood topics amongst beginner/amateur traders; below is our attempt to simplify these … […]

  47. rakesh singh gusain says:

    Hii nitin
    i have some doubt regarding PCR..plz clarify .I have gone through some sites but they have diff view about PCR. some say if PCR r more than 1 means bullish sentiment in market becoz more puts r traded than calls in option thats mean more traders writing puts instead of calls and some says that if PCR more than 1 that means more puts r traded than calls and this means more traders are betting against the underlying and hence the general outlooks is bearish.

  48. Mahesh Mohan says:

    Excellent writeup Nithin! Loved the way you used real life examples to explain open interest.

  49. Asu says:

    Hai Nithin,
    Thanks, How to use all this in intraday equty future trading. suppose i am amusing ONGC (or any scrip) would go 10% ,Because price braked my resistance level .so, How to use OI ,PCR the possibilities of reaching next level of resistance.
    And how to find which call option to buy or put to write ???

  50. sameer patekar says:

    What will be the Put Call Ratio for Stocks and how it will be Calculated….???

  51. Srinivas says:

    Sir, I am new for options and I have basic knowledge about options. I am option buyer ( Retail investor) and I need a clarification / guidance on the following…. I am a ZERODHA customer also……

    Currently nifty is at 7850. It has raised by 200-250 pints in last 3 days.

    Today data shows as….
    1) nifty index future OI increased by 9.05%

    2) nifty 7800 put -OI 3898800 increased by 2561100 (highest OI change)
    3) nifty 8100 call –OI 4215150 increased by 1243800 (highest OI change)

    4) nifty call OI = 5043975 “7900” – nifty put OI = 1854225 (for same strike rate)

    As per ur article I understand that, 7800 is support and 8100 is a resistance for nifty for this month expiry.

    Now, my point is that, what is a strategy for me (option buyer) . Which option “call / put” may be profitable for next 2-3 days for trading.

    Please explain me, it is only approximate , because I know that any thing can happen in Market at any time.

    Hope a speedy reply on this.

    • Venu says:

      As a business, we don’t recommend to our clients strategies/tips on what can make money. I suggest you go through the various Option Strategies discussed on Varsity: http://zerodha.com/varsity/module/option-strategies/ to get a better understanding on what can be a good strategy to deploy.

      • Srinivas says:

        Thanks for reply, but I didn’t get my answer.

        I am not asking you any suggestion / recommends on my trading strategy. Just I want to know can I understand the OI theory properly or not.

        1) Lets come to the point, I want to buy nifty call options ( at 7800 ) based on the above analysis. Because, I feel that there was huge support for nifty at 7800 and it may rally towards 8000-8100 in near term . Or I want to buy a nifty put options ( at 8100), because, I feel that there was huge resistance for nifty at 8100.

        2) In some wesites I was read as a high OI options at same strike rate (call or put) will give profits. ——– This is only a advise I never take decision with out research……

        Is this right or not (based on the OI analysis).

        I am requesting to pl give me a support as a friend not as a business concern.

        I hope u will understand and clarify what I want to know……..

        Thank u once again.

        • Venu says:

          Your understanding seems fairly correct based on the numbers that you’ve given but again the markets are dynamic and any interpretation drawn from the numbers need not be assumed as conclusive evidence of what the markets may actually do.

          There’s a whole module available on Varsity on Open interest which also discusses the connection between OI & Volume. Here’s the link to it: http://zerodha.com/varsity/chapter/open-interest/

        • Ramesh says:

          Hi Srinivas,

          for ex. if you buy nifty 8100 call option, you will not make any profit until Nifty crosses beyond 8100 + pts equal to your premium cost to make any profit and while you say that 8100 is the resistance which are both contradicting.

          If you buy 7800 Call option, the premium is around Rs170 which means that Nifty has to cross 7970 before the expiry and make profit.

          In a nutshell look at the time decay of the premium and the volatility and buy the options accordingly when they are bit cheap. Also the duration you hold the options are also very important.

  52. Balaji says:

    Dear Sir ,
    Is there a way / option in Kite or Pi Software to view the OI Chain or data and Maxpain, If show kindly guide me how to view the same in your trading software.

    Regards
    PV Balaji

  53. Ramesh says:

    Hi Nitin,

    Last when i spoke to a person from Zerodha, he mentioned that Kite 2.0 will have enhancements to place the order directly from the chart…any idea about this?

    also can the open positions be displayed on the chart?

    Rgds
    Ramesh

  54. Shreyans Gupta says:

    why do people consider it gambling? can you give me some quote or any example that helps me to explain it to my parents.

  55. Deviprakash shetty says:

    Sir,
    As you said through “MaxPain Theory” market closing value can be assumed.
    My doubt here is how can derivatives can decide spot price?
    Futures and options are derived from spot prices right?

  56. Philip says:

    If I see the put call ratio of a particular stock is day 0.11. If it means for every 100 calls there are just 11 puts. Doesn’t it mean this stock is bullish? And we can look for a short term return from the stock? Let me know if my understanding is correct. Also hope buying options does increase the cost of the stock?

  57. adarsh says:

    is there any webiste that show live chart of combined equity/index PCR?

  58. haribabu says:

    Quote : ” We at Zerodha are looking forward to providing you a tool to track a proprietary strategy of MaxPain for Nifty on our new website. ”

    I would like to know when this tool will be available.

  59. Sanjay says:

    Is it possible to get date wise historical put call ratio of Nifty? I am able to see current day put call ratio on NSE website but could not find the historical data.

  60. Nilesh says:

    Hi Nithin,

    I had one observation that say for example when the nifty is rising and during intraday there is an huge increase in ITM PE OI.
    Now this has different behavior on different days:
    1) Nifty will fall during last hour of day thus rewarding the PE buyers and meaning smart money was buying ITM PE
    2) Nifty opens gap down on next day and again good for ITM PE buyers.
    3) Nifty goes up on next day and this time smart money was writing the ITM PE.

    How do we identify these different behaviors and maximize our chances of winning. Also looking at such conditions it seems that people do buy options but more of ITM options. Please provide your inputs.

    Thanks,
    Nilesh

  61. sunil tyagi says:

    hi,
    can we have intraday and historical chart of open interest on kite website.?

  62. chetan says:

    Is any way to check open interest data on Kite?

  63. Chirayu Sutaria says:

    In calculating put call ratio, if somebody writes call(sell a call), how will that impact the ratio ?

    • It depends on if the open interest is going up or down. When you are selling a call, is the person buying from you is a new person or an existing short exiting. If OI decreasing PCR is going up and vice versa.

      • Chirayu says:

        I am sorry but it’s not very clear to me yet.
        For example, for hindalco march future, on 2nd mar 2017, OI PCR is now .47 changed from .59.
        The OI reduced by -1.3% and price rose by .63%. How can one interpret this ?

        • OI of what reduced by -1.3%? both call and puts have separate OI

          • Chirayu says:

            Hi, NIthin,
            I took the details from Moneycontrol. Please let me know if there is better site to analyze the OI.
            I think there was long unwinding here and the undertone remains bullish.
            What else can we derive from these numbers ?

            Current OI Change % Chg
            Future 49,833,000 -668,500 -1.32%
            Call 15,246,000 4,294,500 39.21%
            Put 7,217,000 773,500 12.00%
            Total 72,296,000 4,399,500 6.48%

            • Hmm.. by the max pain theory, OI on calls went up significantly, that means more people writing calls. Since option writers are supposed to be the smarter lot, that means smarter people believe that price won’t go up above the strike.

  64. Pankaj K Agarwal says:

    Amazing read! Thanks.

  65. SATYA says:

    Hi sir

    what is LONG BUILDUP , LONG UNWINDING , SHORT COVERING, SHORT BUIDUP??

    please explain this

    • Long buildup: open interest going up when price going higher.
      Long unwinding: Open interest going lower when price coming down.
      Short covering: Open interest going down when price going higher.
      Short buildup: Open interest going up when price coming lower

  66. ds7582 says:

    where to find live put call ratio

  67. Ashok says:

    Hi,

    Here you talked about intraday OI

    https://tradingqna.com/t/is-the-live-open-interest-oi-data-being-provided-by-exchanges-correct/7208

    Is this applicable for options chain OI also?

  68. chillaranand says:

    If PCR is 1.4, then more puts exists than calls. This means more professional traders are writing puts than calls. In such case underlying should fall?

  69. Manish Sharma says:

    Nitin sir please answer my query.when put call ratio is higher at 1.4 means that time to take a contra call means buying.

    But why tv analyst says stay cautious when put call ratio is higher

  70. Saurabh Khotkar says:

    Hello Nithin,

    thanks for the informative blog. I tried the link you have given in PCR section for the historical Put-Call data and the extreme ends PCR can reach. But there are many files available on that path and I could not understand a thing about how I can get what I want.

    Could you please explain a bit about how we can find this data and in which file?

    Thanks again.
    Best regards,
    Saurabh

  71. Minkesh says:

    Hello Nithin,

    From where i can find options are being written by institutions/somebody ?

    Thanks,
    Minkesh

  72. ZT1846 says:

    Sir, Please , inform me ,
    What is the meaning of the following and what may be the affect /Conclusion in the price?
    1) Long Unwinding,
    2) Short buildup,
    3) Short covering,
    4) Long buildup
    5) High delivery percentage

  73. Mahesh says:

    Hi Team,

    Your this point seems to be incorrect. Since PCR is below 1, then market should go up.

    “If PCR is below 1, it would mean that more calls are being traded and since more calls are being traded by the retail traders (option buyers) this could mean that the markets might do the opposite which is go down. Lower than 1 the PCR is, higher the chances of the market coming down. Since you know that historically PCR has been in the range of 0.7 to 1.3, at 0.7 PCR the chances of the market coming down will be the highest.”

  74. Prateek kumar jaiswal says:

    Hi Nithin,

    How often you go long(buy) while trading in Options? or always choose short side.

  75. Naresh Kumar says:

    Sir for example A stock cmp is trading below the higher open interest of both put and call. How to predict the direction??

    Example 1000 PE OI is 10000 LTP is 200

    1500 CE OI is 15000 LTP is 300

    But cmp is trading at 150 what to do explain please??

  76. DIBYENDU MANDAL says:

    Higher the pcr than 1 higher is the chance of bullish and lower the pcr than 1 , higher is the chance of bearish. Sir, please let me know when the contra trend get reversed , at which higher pcr value the bullish can be bearish and which lower value bearish can be bullish apart from using other indicators of being overbought and oversold

  77. Harshit says:

    i understand what you try to explain above…but being small trader how i can decide which strike to buy either put or call side and when to buy because in nifty there is gap of 50 point in each strike and 100 point in banknifty strikes.
    if the market is between in these point gap when to buy and which side should be select for small trader please explain..
    2- suppose market at 10970 and max o.i created at 11000 call i assume market will revers from that point so i bought slightly otm put of strike 10900pe @80rs ..and within few minutes market spot and future both crosses 11000 what to do hold position or exits ?????but still max o.i in long side shown on 11000ce..
    3- how to utilize data shown in change in open interest …and what to assume when it is in negative in option chain shown on nseindia..
    4-last but not least one how to utilize in the money strike open interest during trading…and in taking buying or sell decision,….
    i hope soon you will clear my query’s ….

  78. Goutham says:

    Hi Zerodha,

    I bank nifty options weekly expiry why u doesnt give small value call or put other brokers are giving upstox and tradejini every time u tell 5% story how can other brokers give why only zerodha is not giving

    • Matti says:

      Hey Goutham, the OI limits set by the exchanges are the same across brokers. With the number of people trading these contracts with a broker, the permissible range would change.

  79. pravin says:

    So going by the contrarian view, then every body will do the just opposite so how to make view and take decision on direction?

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