InvestorQ : As an options trader, should I look at OI in detail and what re the signals that OI gives me as a trader?
shrinidhi Rajan made post

As an options trader, should I look at OI in detail and what re the signals that OI gives me as a trader?

Answer
user profile image
Riya Dwivedi answered.
2 years ago


The OI shifts can give some interesting clues for the traders and even investors who are looking to take positions in equities. When there is interest building up in a stock, one of the first indications you get to see is that there is an increase in the OI of the stock as there is widening of the ownership and more fresh investors are taking positions in the stock. On the other hand, declining open interest, especially in case of stocks that have seen a good rally, could be an indication that the rally is about to come to an end.

OI data is also very useful in identifying turnaround points. Normally, as a trader or even as an investor you make profits when you are able to identify when a trend is turning around. There are a few clear signals in such cases. If a stock is bottoming out, you will see a mix of fresh OI building up happening with institutional build up of OI more prominent. Exchanges do report overall accumulation figures in case of MFs and FIIs and that gives us important clues about the turnaround. The reverse is true when you are trying to identify a turnaround at the top.