What is Open Interest (OI)?
Open Interest (OI) means the total number of open futures and options contracts for a strike or instrument.
It shows how many traders still have active positions.
Example:
If Nifty 22500 CE has OI = 1,20,000, it means these contracts are still not squared off.
How OI Works
- New buyer + new seller enter → OI increases
- Both square off → OI decreases
- One exits + one enters → OI remains same
How to Read OI Data
| Price Movement | OI Movement | Signal | Meaning |
|---|---|---|---|
| Up | Up | Long Buildup | New buying, bullish |
| Down | Up | Short Buildup | New selling, bearish |
| Up | Down | Short Covering | Sellers exiting, bullish reversal |
| Down | Down | Long Unwinding | Buyers exiting, weakness |
Long Buildup & Short Buildup
1. Long Buildup
Price ↑ + OI ↑ = Buyers entering aggressively.
2. Short Buildup
Price ↓ + OI ↑ = Sellers expect a bigger fall.
3. Short Covering
Price ↑ + OI ↓ = Shorts exiting, trend turning bullish.
4. Long Unwinding
Price ↓ + OI ↓ = Buyers closing positions, weakness.
What is IV (Implied Volatility)?
IV is the market’s expectation of future volatility.
High IV → Big movement expected (fear, event, uncertainty).
Low IV → Stable market expected.
How IV Affects Option Premiums
| IV Level | Option Premium | Reason | Effect |
|---|---|---|---|
| High IV | High Premium | Market expects large movement | Costly options |
| Low IV | Low Premium | Market expects low movement | Cheaper options |
What is IV Crush?
IV Crush is a sudden drop in IV after major events such as:
- Union Budget
- Elections
- RBI Monetary Policy
- Quarterly Results
When IV drops → premium falls sharply.
You may lose money even if your direction is correct.
What is IV Spike?
IV Spike happens due to fear, uncertainty, geopolitical events, global market panic, or upcoming major news.
When IV rises → option premiums become very expensive.
Option Greeks
Delta
Shows how much option premium changes if underlying moves by Rs 1.
Theta
Time decay — premium falls with every passing hour/day.
Vega
Shows how much option price changes when IV changes.
Gamma
Shows how fast Delta changes.
Using OI + IV Together
- OI tells what traders are doing
- IV tells what the market expects
Examples:
If Call OI rises + IV rises → Strong upside expectation.
If Put OI rises + IV rises → Downside fear or risk-off sentiment.
Final Summary
- OI = open contracts in the market
- IV = expected volatility
- Long/Short buildup shows trend
- IV crush reduces premiums sharply
- Greeks help understand option pricing
- OI + IV together improve accuracy
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