Regarding Option Open Interest

mohan.sic

Well-Known Member
#21
That's a good lead. Thanks. One. More thing. Where can I find historical OI data.

Sent from my SM-A910F using Tapatalk
Here are list of stocks for previous expiry day - 30th march. These are stocks which closed out of MAX OI strikes range.

1) Highlighted stocks are where MAX OI CE & PE are at same strike.

2)As per the conventional knowledge - If Rs.100 is current market price - Max OI ce strike should be above 100 and max Oi pe strikes should be below 100.

Now please notice - In stocks: Colgate, Grasim, JET Airways, LIC Housing, Wipro - Max oi PE strikes are greater than Max oi CE strikes.

Above data is conflicting the method.

Hope this helps you.
 

Attachments

rajputz

Well-Known Member
#22
Here are list of stocks for previous expiry day - 30th march. These are stocks which closed out of MAX OI strikes range.

1) Highlighted stocks are where MAX OI CE & PE are at same strike.

2)As per the conventional knowledge - If Rs.100 is current market price - Max OI ce strike should be above 100 and max Oi pe strikes should be below 100.

Now please notice - In stocks: Colgate, Grasim, JET Airways, LIC Housing, Wipro - Max oi PE strikes are greater than Max oi CE strikes.

Above data is conflicting the method.

Hope this helps you.
Hi Mohan,

You are ignoring two very important facts of my original discussion.

1. My timeframe is last 6 to 7 days of expiry
2. I am cherry picking the stocks already at resistance/support + they have already rallied too much in the current month that next 5 to 6 days can be wasted in resistance/support breaking and long/short covering/rollovers

In this kind of scenario, I am adding a third variable to the equation. Confirming the resistance/support strength with OI.

Also in the data shared above, it might be irrelevant. 30 days is a long time. That is too early to predict a price for anyone. I think the real analysis will be on real time basis when I see the change every day, plus the difference between maxed OI of Calls and Puts has to be considered as that can give a clue of where the smart money is.
 

travi

Well-Known Member
#23
My 2 cents, its not a big deal that price closes beyond the MAX OI but most of the times its overlap in terms of absolute points ITM is...

Forget the smaller trades doing it a week or so etc
The combined selling price of most selling strategies have a pay-off more than those pts ITM.
This needs to be taken into a/c.
Last week I had a similar strategy that expired 20pts ITM for one leg, its sell-value at inr. 15 was reduced to inr. 9.
My combined strategy was still profitable.

So don't just look at Intr. Value but also its Time value and one's gain from decay.
 

travi

Well-Known Member
#24
In the chart posted above, its interesting to note that the close is actually marginally small beyond the MAX OI which further strengthens the concept :D:D:D

Anomalies will exist if stocks really move out of the way but if these are all the stocks in the MAX OI range (even though strike), then imagine the number of stocks that upheld the MAX OI Theory,
If we can get the data.
 
Last edited:

mohan.sic

Well-Known Member
#25
Hi Mohan,

You are ignoring two very important facts of my original discussion.

1. My timeframe is last 6 to 7 days of expiry
2. I am cherry picking the stocks already at resistance/support + they have already rallied too much in the current month that next 5 to 6 days can be wasted in resistance/support breaking and long/short covering/rollovers

In this kind of scenario, I am adding a third variable to the equation. Confirming the resistance/support strength with OI.

Also in the data shared above, it might be irrelevant. 30 days is a long time. That is too early to predict a price for anyone. I think the real analysis will be on real time basis when I see the change every day, plus the difference between maxed OI of Calls and Puts has to be considered as that can give a clue of where the smart money is.
I understand that. You just wan to use the max OI strike as a confirmation/may be at a second or third level to give strength to your actual trade signal which you take based on support/resistance levels after extended price moves.

I cant give opinion on that. Support/ Resistance are subjective in nature and cant be tested.

The Data and opinion i gave is only based for trading with MAX OI strikes as sole method.

To elaborate - During the course of month - MAX OI strikes behaves in 2 ways:

1) MAX OI strikes will adjust accordingly to price moves ( max OI call strikes will move up during uptrend and put strikes will move down during downtrend ). I think you already noticed such behavior in your exp.

2) The Stock prices change - But Max OI strikes remains at the same level.
This behavior can be seen from the data i gave.

From above, we can make out that some times Strikes keep adjusting based on price move and some times they don't.

So on a stand alone basis- I cant trust this method. Do you agree to this point ? if yes let me know..:)
 

rajputz

Well-Known Member
#26
I understand that. You just wan to use the max OI strike as a confirmation/may be at a second or third level to give strength to your actual trade signal which you take based on support/resistance levels after extended price moves.

I cant give opinion on that. Support/ Resistance are subjective in nature and cant be tested.

The Data and opinion i gave is only based for trading with MAX OI strikes as sole method.

To elaborate - During the course of month - MAX OI strikes behaves in 2 ways:

1) MAX OI strikes will adjust accordingly to price moves ( max OI call strikes will move up during uptrend and put strikes will move down during downtrend ). I think you already noticed such behavior in your exp.

2) The Stock prices change - But Max OI strikes remains at the same level.
This behavior can be seen from the data i gave.

From above, we can make out that some times Strikes keep adjusting based on price move and some times they don't.

So on a stand alone basis- I cant trust this method. Do you agree to this point ? if yes let me know..:)
To some extent. It has given me another way to think. I once read somewhere regarding how a floor trader or option writers work. Conclusion was that they just don't earn so much premium. They adjust according to market and there margin is small. Plus Travi is also right I suppose. They have adjusted to price change. They are not selling a single strike. Combined premium they collect is much more then what they lose.

Gave me another way to think.

Regards

rajputz
 

mohan.sic

Well-Known Member
#27
In the chart posted above, its interesting to note that the close is actually marginally small beyond the MAX OI which further strengthens the concept :D:D:D

Anomalies will exist if stocks really move out of the way but if these are all the stocks in the MAX OI range (even though strike), then imagine the number of stocks that upheld the MAX OI Theory,
If we can get the data.
If close falls between Max Oi strikes - It does not mean it upheld the theory.:)

In reality what happens is Max Oi strikes keep adjusting to price moves.
A Max OI ce strike on Day 1 could change to another strike on Day 4 depending on the price move occurred.

To give you example: Day 1 : DLF price @ 200 and max OI ce strike is at 210.
Now as per theory - strike 210 should hold the price.

Day 4: If DLF price @ 220 - max OI ce strike could be at 230.

Now if we see DAY 4 alone- we will think that MAX oi strike is holding.

But is that correct way of looking ? No. You need to look at the whole series data of price movement and max OI strikes movement

So on 30th march data - Assuming that max no of stocks worked as per theory is not correct way of looking at it.
 

mohan.sic

Well-Known Member
#28
To some extent. It has given me another way to think. I once read somewhere regarding how a floor trader or option writers work. Conclusion was that they just don't earn so much premium. They adjust according to market and there margin is small. Plus Travi is also right I suppose. They have adjusted to price change. They are not selling a single strike. Combined premium they collect is much more then what they lose.

Gave me another way to think.

Regards

rajputz

Exactly the point. Most of the times, They Keep adjusting to price changes.
What does that mean ? it simply means that those strikes can't hold the price movement. And when the price moves, these strikes usually follow the price & adjust accordingly giving us a impression that prices are in sync with max oi strikes. Follow any trending stock on daily basis and you can easily notice that.

Even if max Oi strikes does not move inspite of price changes - Does this mean that these strikes will pull back the prices to strike levels..No. This we have seen on march 30th data. Prices closed out of Strike ranges.

So i cant take this method on standalone basis.

Any way this is just my opinion and its always good for you test on your own and decide..
 
Last edited:
#29
I am also looking at it as a secondary factor and not primary. Just as a cautious approach and to strengthen the view. I will be having a fail case scenario too.

Sent from my SM-A910F using Tapatalk
IO ..interesting vintage topic:)
Suggest don't read too much into it. As it's a reflection of market only to an extent.

- IO buildup should be seen 8/10 days before expiry. As the buildup is more stable n mature by then..
- smart money ppl ( HF/FII, etc) are traditionally the market makers ....so they r better placed to bet on the support/resistance levels. But use your judgement over it...else if everyone can just short at that level...means all can make money....? Not really !

COI.....yes..gives broader idea on covers, or new position buildips.

All she be used in total with economic macros. That decides a successful trader.

Sent from my Redmi Note 3 using Tapatalk
 
#30
I have been trying to read about the Open Interest and COI and how it serves as a support and resistence.

Any good writeup or book on this concept...
 

Similar threads