Open Interest & Option Chain Analysis

Options trading has grown rapidly among retail and institutional traders due to its strategic flexibility and leverage. Two of the most critical tools for options traders are Open Interest (OI) and Option Chain Analysis. These tools provide deep insights into market sentiment, potential support and resistance levels, and liquidity zones. This guide will walk you through the concepts of Open Interest, Option Chain interpretation, real-world strategies, and how to apply this knowledge for smarter trading decisions.

🔹 What is Open Interest?
Open Interest refers to the total number of outstanding options contracts (calls or puts) that have not been settled or closed. It reflects how much active participation exists in a particular strike price and expiry.

Key Points:
Increase in OI: Indicates that new positions are being added (either long or short).

Decrease in OI: Means traders are closing out positions.

High OI: Signals strong interest in that strike price – potentially a key level for support or resistance.

Unlike volume (which resets daily), OI is cumulative and updates after the close of each trading day.

Example:
You buy 1 lot of Nifty 17000 CE, and someone sells it to you → OI increases by 1.

You later sell it and the counterparty closes their position too → OI decreases by 1.

🔹 What is an Option Chain?
An Option Chain is a table displaying all available option contracts for a specific stock/index across various strike prices and expiries. It includes data such as:

Strike Call OI Call LTP Put LTP Put OI
17500 1,20,000 ₹75 ₹30 90,000
17600 2,40,000 ₹45 ₹40 2,00,000

Key Elements:

Strike Price: Price at which the option can be exercised.

Calls vs Puts: Calls are on the left; puts on the right (or vice versa).

LTP: Last Traded Price.

OI & Change in OI: Used to spot where the smart money is positioned.

🔹 How to Read Open Interest in the Option Chain
OI provides crucial support and resistance data. Here's how to read it:

1. High Call OI ➝ Resistance
Traders are selling call options at that level, expecting the price won’t rise above it.

2. High Put OI ➝ Support
Traders are selling puts, expecting the price won’t fall below it.

3. Change in OI (Today’s change) ➝ Trend confirmation
Positive change in Call OI + Price Falling → Bearish

Positive change in Put OI + Price Rising → Bullish

🔹 Multi-Strike OI Build-Up
Sometimes, OI builds up in multiple strike prices above/below the spot. This forms resistance/support zones.

Example:

Call OI: 17800 (3L), 17900 (2.7L), 18000 (4.1L)

Strong resistance between 17800–18000

Breakout above 18000 is significant.

🔹 Intraday Option Chain Analysis
For intraday traders, changes in OI on a 5- to 15-minute basis can reveal sharp shifts in sentiment.

Use Change in OI (Live updates).

Look at IV (Implied Volatility): Spikes can indicate event-based risk.

Combine with Volume Profile, VWAP, and Price Action.

Example:

At 11 AM, sudden jump in Put OI at 17700.

Price bouncing from 17720 → Intraday long trade setup.

🔹 Common Mistakes to Avoid
Looking at absolute OI only – Always compare to change in OI.

Ignoring context – Use OI in combination with price, volume, and trend.

Chasing false breakouts – Wait for OI shift confirmation.

Trading illiquid options – Stick to strikes with high volume and OI.

🔹 Tools for Option Chain Analysis
NSE India Website – Free option chain.

Sensibull, Opstra, StockMock – Visual OI charts and PCR.

TradingView OI Indicators – Live OI overlays.

Fyers/Webull/Zerodha – Broker-integrated data.

🔹 Advanced: OI Spreads & Traps
OI data can also reveal where retail traders are trapped:

Call writers trapped when price shoots up → Short covering leads to spikes.

Put writers trapped when price falls → Sudden breakdown.

Watch for spikes in volume + OI unwinding.

🔹 Summary: Step-by-Step Framework
Step Action
1 Identify spot price and trading range.
2 Look for highest Call & Put OI levels.
3 Observe changes in OI throughout the day.
4 Use PCR for overall bias.
5 Confirm with price action before trade.
6 Exit if OI starts shifting against your trade.

🔹 Conclusion
Open Interest and Option Chain Analysis are powerful tools when used correctly. They offer traders a real-time look at market sentiment, help identify key levels, and give clues about institutional activity. However, they should not be used in isolation. Combine them with price action, volume, and technical analysis for the best results.

Whether you're an intraday trader, swing trader, or options strategist, mastering the art of reading the option chain and open interest will give you a strong edge in today's fast-moving markets.