Open interest data in F&O trading is touted as a magic ball by some stock traders using which they determine market direction that are otherwise behaved like a random shock always. When you are repeatedly told that using OI, you can pursue an successful trading career, you jump into that appeal without actually knowing the reality.
In this article we will discuss, the value of “open interest” as an indicator, first of all get this basic clear that, open interest does not carry any great deal of value in them for predicting stock moves, although it’s not entirely useless too but they are heavily lagging indicator. That’s what we are going to see.
Debunking hypes around open interest
Open interest is just like volume in equity, but with some difference. A rise in price may see build up in OI, and vice versa. so if you are looking at OI, ask yourself, does it give you anything more insight than price is already showing you ?
Open interest gets you little help in options trading and in swing trading ( position carry over days), as they mark the probable resistance and support area, which can be entry or exits areas for your trades. But trick is those levels are known to most traders without even looking OI table, as these levels are chosen with laymen picks, most stock traders will have the same level for shorting options.
Beyond that it’s useless, at least for intraday trades its barely of any help, if you look at that in live market, you end up adding confusion to your actions.