Open Interest Short and Long

I understand open interest as number of contracts sold at particular strike price.

Person who sells PE is Bullish.
Person who sells CE is Bearish.

what is OI Long and OI Short ? @ShubhS9 @siva

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Dear @suri, that is depends on which strike price seems more activity.
Consider Scenario :
If activity seems far from the spot price nah then it’s termed as OI long and short as vice versa.
Note : if am wrong please correct me
Thank you.

Can check this Ideally at any OI there will be same longs and same shorts but general rule is option writers make consistent money and it requires more money to short so HNIs or institutional money is involved and is termed as smart money but all this may not necessarily true all the times so any buildup of OI is read from writer perspective and also people predict if longs are building up or shorts when volume and price points are also involved along with OI, that varsity article should give some perspective how OI show be read.


This is wrong and you can check that varsity article on OI.


@siva @Prayag In the above link.
The table for Price and Volume.
Price : Increasing, volume : increasing, Given: Bullish.
Intuitively ,Eg: if There is only one person who sold 100 qty PE( OI is equal to 100) ,These contracts constantly exchange hands (1000 times) with higher prices. Intuition tells me market is bearish. How is it bullish?

The table for Price and OI
Price: Increase, OI: Increase, Given:More trades on the long side
Here, Is he referring to CE OI or PE OI?

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Price increasing, PE OI increasing, Bullish
Price increasing, PE OI decreasing, Bull Trend might reverse to bear
Price decreasing, PE OI increasing, Bear Trend might Reverse to bull
Price decreasing, PE OI decreasing, Bearish

Price increasing, CE OI increasing, Bull Trend might Reverse to bear
Price increasing, CE OI decreasing, Bullish
Price decreasing, CE OI increasing, Bearish
Price decreasing, CE OI decreasing, Bear Trend might Reverse to bull


First of all, OI is not the number of contracts sold but the number of contracts currently active (or open), remember it takes both a buyer and a seller to make a contract.

Think about it this way

Let us look at Call options. Let say the price of a call option is increasing and the call OI also is increasing that would signal a bullish market or long build-up. Why? Because the price increase is driven by more new long positions being created since there is an OI increase along with the price increase. In simple words, new traders taking new long positions on call options is driving the price upwards, hence it is a bullish view.

But, let say when the price is increasing but the OI is decreasing what could be the reason? It is because, this price increase is driven by short position holders buying calls to square off their short position thereby reducing OI and temporarily sending the prices upwards – this is referred to as a short covering. This is an indication of market reversal, triggering option writers to square off.

Similarly, when the price for a call option is decreasing and the OI is decreasing, it is long unwinding indicating a bullish market reversing to bearish. Here, bullish traders that were holding a long position are now squaring off their positions in large numbers, hence indicating a possible market reversal.

Lastly when the call price is decreasing and the OI is increasing this is a short build-up indicating a bearish market.

For Put side, the same logic applies but in the exact opposite sense. And one of these market phases on the call side will almost always be replicated in the put side as a opposite market phase.

Here is a ready reckoner for call options only.

Price OI Market Phase Signal
Increase Increase Long Build-Up Bullish
Increase Decrease Short Covering Reversal to Bullish
Decrease Increase Short Build-Up Bearish
Decrease Decrease Long Unwinding Reversal to Bearish

Of course, these are general indicators only and there are no exact ways to catch these at the right time. More often than not we’d only see it once its all over. :blush: But it is worthwhile to keep an eye out for the short-covering and long-unwinding phases since there is usually a pause or rebound before moving further in its new direction.

Hope this helps.


@Rejeesh_Mathew Thank you for helping me understand.

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