I was reading on moneycontrol website and I found this on sept. 7 2018…
1.Maximum call open interest (OI) of 41.65 lakh contracts was seen at the 11,800 strike price. This will act as a crucial resistance level for September series.
2.Call writing was seen at the strike price of 12,100, which added 3.23 lakh contracts,
-
Maximum put open interest of 44.61 lakh contracts was seen at the 11,400 strike price. This will act as a crucial support level for September series.
-
Put writing was seen at the strike price of 11,400, which added 5.8 lakh contracts in open interest
What does that all mean ? How does max call OI suggests resistance? and how does max put OI suggests support? can someone explain?
Example - in August beginning Nifty was around 11200. And Nifty 11000 PE had highest OI. What it means is lot of retailers bought it assuming 11200 is top and Nifty will again fall below 11000.
But for retailers to buy, someone has to sell right? Selling options takes big margin. So only big money and institutions do it. They knew/felt Nifty has to go up to 11500.
So what happens at the end, retailers (option buyers) always lose, and institutions (option sellers) always win
Which means 11000 PE which had highest OI acted as a support. Same goes for CE option if more OI it means resistance.
So at any point if you see max OI it is not a positive, infact it is a negative.
But please note nothing is hard and fast. As we saw Nifty in August expiry fell below support of 11600 even though both 11600 PE and 11700 PE had huge OIs.
2 Likes
So at present 11800 CE has highest OI which is 4,001,250 and highest OI in Put side is at strike price of 11500 which is 4,764,075 (huge increase in last one day)
So as per your explanation there are lot of sellers (big money) who wrote put options at 11500 PE means they feel/know that its going to go up correct?
At the same time looking at highest call writing at 11800ce indicates those big money writers think its going to down correct?
If that is true …these sellers think nifty will close between 11425 - 11850 during this sept. expiry?
Also, what does huge increase in 11500 PE indicates ? (please note that there is significant decrease at 11800 PE …what does this increase/decrease in put side indicates?
I think due to the fact that Nifty rebounded from big support of 11400 and then suddenly showed buying in second half of Friday.
That can be the reason why suddenly all calls are showing Chng in OI as negative, means people got scared and closed their call writing.
And 11500 PE and 11400 PE had big addition of OI. Showing people think it as good support.
You can follow this guy’s videos he does Nifty technical analysis everyday:
But my confusion is…
Max call OI is still at 11800(even after fear selling) but PE moved to lower strike price of 11400 from 11800 (i.e. 11800 PE OI is decreased and 11400 PE, 11500 PE and 11200 PE increased )
This is contradictory …is not it?
Yes the Chng in OI is negative, but small amount of negative. So number of people who got scared and closed their call writing is less that’s why Call OI still more or less at same levels.
Didnt understand what you mean PE moved from 11800 to 11400? 11800 PE is not important right now. On PE side, Chng in OI is adding at 11400, 11200, 11000 etc levels, so it shows people want to find supports but are scared of markets falling also.
Like someone is writing PE at 11200 means they feel 11400 is not safe, someone writing at 11000 means they feel even 11200 is not safe.
What I meant to say OI on put side indicates more people think it index will go down but looking at Call side it indicates index will go up …that is what is confusing me.
Always market has a support and a resistance both, so u will have one max OI at call side and one similar amount of max OI at put side
Now its 11400 (support - Puts OI) and 11800 (resistance - Calls OI) as per your post
And currently yes trend is a bit tricky, there are people thinking Nifty will go up as well as those thinking down. Trend is not as clear as July or August
I have more questions on this topic …
This is what I read on moneycontrol.com
Maximum call open interest (OI) of 40.01 lakh contracts was seen at 11,800 strike.
There was hardly any call writing seen. Highest call unwinding was seen at 11,700 strike
NOW it says there was hardly any call writing seen…if there was no call writing …how can be open interest 40.01 lakh contracts at 111800 strike…does it mean there was ‘no NEW call writing seen since previous day’?
Yes they are talking about ‘Chng in OI’ compared to previous day, when they talk about incremental call writing or call unwinding