That is absolutely correct and it is perfectly possible. This is perhaps the best use of the OI data. When you compare the nature of OI movement with the medium term price trend, you get a clear idea of what is happening in the stock. Let us look at 4 such special situations…

· If the Open Interest of the stock is rising and the price is also consistently rising, it is considered to be a healthy sign. It is a sign that investors are getting interested in the stock and there is also distribution of ownership that is happening. This is a key data point that helps traders and investors to judge the sustainability of a stock rally.

· How do you interpret the situation if the OI of the stock is falling but the stock price is rising? This is a clear sign that the market is weakening. One can interpret it as a situation where the stock rally is being driven by short covering. Short covering is a case of shorts that are stuck in the position and are booking losses. This is a sign that fresh buying is not happening and the stock prices could start correcting once the short covering is over.

· How do you interpret if the price is falling but the OI is rising? That is not a good sign. It basically means that fresh short positions are being built up and that is a sign that market expectations of the stock are sharply negative. It is a sign of weakness since shorting only happens when traders expect a deep correction in the markets.

· How do you interpret when the OI is falling and the price is also falling? There could be two interpretations. Firstly, it could mean that long positions are unwinding and that could be a reason for worry in the markets. But it also means that the stock is becoming light in terms of F&O leverage and that is good news as the froth is likely to be out of the stock. Many cash market investors look at this as a positive signal. OI is a therefore a key metrics for traders. When juxtaposed with price movements, it can give interesting market clues.