Lately I have started some option analysis and have gone through many threads. Decisions are mostly made on the basis of OI analysis rather than charts, it seems. OI, Change in OI, PCR, Maximum pain etc are the major tools rather than the chart of underlying.
In my understanding the entire analysis depends on option writing. This is because Option writers are considered as players with deeper pockets who can move the markets. For example
if 8300PE has highest open interest, traders perceive it as important support for the time being.Keeping in view that most institutional investors write options rather than buy, the data helps to understand mood of ‘intelligent money’. Similarly if huge open interest is built for 8600 calls it will be seen as major resistance zone. If the expiry is near then the market may stay range bound between these two levels so that sellers can eat the premium. Am I right?
Later I stumbled upon this data related to FII (
Click to read). Surprisingly I found almost always FIIs are net option buyers. Most of the days they pay premium rather than collect it. They buy more contracts than they sell.I could not find the data related to DII. But I think they cant be different
If so the very basic assumption of Option analysis gets invalidated. Retail write more options than institutions.Then the Big boys plan could be different. that is to inflict maximum damage to retailers by moving price near or beyond these levels forcing them to buy back at higher prices.
I am just a beginner and struggling to understand the big picture. Option experts, Kindly guide.
