Open interest (OI) is the total number of outstanding F&O contracts that have been opened but not yet closed, squared off, or expired. It measures how many active positions exist in a particular contract at any point in time.
Open interest is different from volume. Volume counts the number of contracts traded during a session — it resets to zero every day. Open interest counts the total live positions at the end of each session — it carries forward and changes only when new positions are opened or existing positions are closed.
How Open Interest Changes
Open interest increases when a new buyer and a new seller enter a contract together: both are creating a new open position. It decreases when an existing buyer and an existing seller close their positions against each other. It stays the same when one trader closes a position that is immediately taken over by a new trader.
Reading OI in Combination with Price
OI alone tells you how many positions exist. Combined with price movement, it gives you information about the conviction behind a move:
Rising price + rising OI: New money is entering the market in the direction of the move. Both buyers and sellers are creating new contracts at higher prices — buyers are convinced the move will continue, sellers are convinced it will reverse. This is considered a sign of trend strength.
Falling price + rising OI: New money is entering in the direction of the fall — short-sellers are opening new positions. This confirms downward momentum rather than simple profit-taking.
Rising price + falling OI: Short-sellers are closing positions (buying back to cover) as the market moves against them. The upward move is driven by short-covering rather than fresh buying. This is considered a weaker signal than rising OI with rising price.
Falling price + falling OI: Long positions are being exited — this is profit-taking or capitulation, not fresh short-selling. The downward move may be running out of sellers.
Open Interest in NSE Options
In NSE options, OI at each strike level shows where large concentrations of contracts exist. High put OI at a particular strike can indicate a significant support level — large option sellers who sold puts have an incentive to keep price above that strike before expiry. High call OI at a strike indicates potential resistance for similar reasons.
This is the basis of "max pain" theory and strike-level analysis on expiry day. While these are analytical frameworks rather than reliable trading rules, understanding where large OI concentrations sit helps explain certain expiry-day price behaviour on NSE.
For educational purposes only. Profitma is not a SEBI-registered investment adviser or research analyst. Nothing in this article constitutes investment advice.