Nifty Open Interest Analysis

[Option.Trader]

80% of market is driven by just 20% of money bags. This is ever so true of Indian market where FII's rule the roost with $B being pumped in at regular intervals. It pays heed to analyze the trading of FII's in this context, as they could easily fill out an order book if they so wished. We are trying to analyze this data to see where 80% of movement is happening. Remember the flash crash of 5/10/12.. just 650 cr of cash brought down the nifty by 900 points.. so its easy to swing the cash market and reap the rewards in derivatives with leverage, for lesser mortals, it pays to take a clue
So with this, lets just lay out some fundamentals of Open Interest as is common knowledge (Courtesy Kiranjakka's thread which so nicely lays out fundamentals)
Writers in general have a sound knowledge of levels and are willing to take limited profits with upside risks unlimited. So you better be knowing what you are upto if you are an option writer.
Call writers are generally bearish and will write a call in order to eat away all the premium. The higher Open interest bearing strike price usually is the upper limit that majority of participants think Nifty will go to
Put writers are bullish on the contrary and will define a lower band for nifty. On the contrary, put writers give an indication as to where the bottom lies
Two other aspects

ACCUMULATION
If OPEN INTEREST increases and the price also increase, it suggests that accumulation is taking place.

WRITING
If OPEN INTEREST increases and the price decreases, it suggests that writing has been done.

A word of caution, real events can easily change the whole scenario in a matter of minutes. Use caution while trading at your own risk. This is meant to act as a guide and not as a written rule

Going forward, i'll exclusively post OI analysis considering options and futures for Nifty.

 

[Option.Trader]

OI analysis for Monday Oct 08, 12
Continuing yesterdays trend, Call writers had a field day. Yesterday we saw a 26% change in OI in 5800 and today we followed by another 21% in 5700. So huge premiums were eaten away.
Unwinding of Puts indicating a downward momentum is beginning to unravel with 13% and 8% getting unwinded in 5800 and 5700 PE respectively
Tomorrow's outlook "Downside to continue"

 

[healthraj]

Good Analysis. Please continue on a daily basis.

 

[Option.Trader]

Good Analysis. Please continue on a daily basis.

Thanks for support Raj

 

[hemalsutaria]

really good analysis please keep it up

 

[timepass]

I know that this thread is about Open interest, but since you are including the FII activity, also include the FII/DII activity in cash segment too. Sometimes it helps to look the change in OI with a view to the cash activity because futures positions may have been initiated as a hedge to cash, and not necessarily be a position in themselves. Just an idea.

Edit : Besides, we don't have any thread where the daily FII/DII activity is reported . Seems pointless to have a thread just for that.

 

[Option.Trader]

I know that this thread is about Open interest, but since you are including the FII activity, also include the FII/DII activity in cash segment too. Sometimes it helps to look the change in OI with a view to the cash activity because futures positions may have been initiated as a hedge to cash, and not necessarily be a position in themselves. Just an idea.

Edit : Besides, we don't have any thread where the daily FII/DII activity is reported . Seems pointless to have a thread just for that.

Thats true.. but in India, with low cash volumes, people are able to manipulate easily as seen through the Emkay blooper. Futures held up, so inclined to stay on Futures.. but will post when makes sense

Also caution on today's trade... though SGX nifty suggest upside... take it with a pinch of salt

 

[sridhar]

Thats true.. but in India, with low cash volumes, people are able to manipulate easily as seen through the Emkay blooper. Futures held up, so inclined to stay on Futures.. but will post when makes sense

Also caution on today's trade... though SGX nifty suggest upside... take it with a pinch of salt

Do please clarify my query of 5700CE interest build up on 5th. posted here:
http://www.traderji.com/derivatives/72840-trade-options-data-part-2-a-22.html#post729709

I find the accumulation of OI giving a clear pointer of where the market is heading. But I am not able to properly interpret the intraday volume levels ( as seen on trading screen).

Thanks

 

[Option.Trader]

Do please clarify my query of 5700CE interest build up on 5th. posted here:
http://www.traderji.com/derivatives/72840-trade-options-data-part-2-a-22.html#post729709

I find the accumulation of OI giving a clear pointer of where the market is heading. But I am not able to properly interpret the intraday volume levels ( as seen on trading screen).

Thanks

On 5th Oct, There was a rise in OI with a fall in price, so people were taking the opportunity to short the call and eat the premium as it had run up considerably. On that day itself, people would have made close to 30 points in just 5800 CE premium. On the other hand, the order book that you are alluding to , is just some guy having massive orders at some ridiculous price that skews the TBQ and TSQ.. usually people use huge orders to keep the price at certain levels. But just seeing the TBQ and TSQ wont give you any pointers

 

[Option.Trader]

Trade : Oct 9 12

Well as we said yesterday, the OI was leaning towards downside. Even though we had a gap up, we couldn't sustain it and closed at a Doji
This is the time, writers just eat away the premium. We cannot predict overnight cues, but if we didn't have a position to start with, we would have avoided playing into their hands at the opening
The entire game is a play on probabilities, we are trying to maximize the probability of occurrence, but not eliminating or else i wouldn't be writing here and instead been spending my evenings by a sea shore

Today's play
FII's bought Index futures worth -6.8 cr with increase in price by 22 points and OI. It indicates that they sold at opening and bought back at end of session. In short they booked profits on their shorts, no real longs created

Unless 5740 is crossed on a closing basis, the trend is still down in immediate short term. The longer trend is still on the upper side as long as 5640 is not broken on down side on a closing basis
Trade with caution