Open Interest

Open Interest (OI) is the total number of active (unsettled) futures or options contracts at any given point in time. Unlike trading volume, which counts every contract traded during a day, OI counts only contracts that remain open — positions where a buyer and seller have entered into an obligation that has not yet been closed, expired, or exercised.

When a new buyer and a new seller enter into a futures contract, OI increases by 1. When an existing buyer sells to an existing seller (both closing their positions), OI decreases by 1. When an existing holder sells to a new participant, OI stays the same — one position was closed, but a new one was opened.

On the NSE, OI data is published in real time for all derivative contracts. For the Nifty 50 options chain, traders closely monitor OI at each strike price to identify support and resistance levels. The strike price with the highest put OI is often treated as a strong support level, while the strike with the highest call OI acts as resistance. This is because option writers (sellers) at these strikes have a vested interest in preventing the index from breaching those levels.

Analysing the change in OI alongside price movement reveals four scenarios. Price up + OI up = fresh longs (bullish). Price down + OI up = fresh shorts (bearish). Price up + OI down = short covering (potentially weak rally). Price down + OI down = long unwinding (potentially weak decline). This framework is fundamental to derivative market analysis.

In India, Nifty weekly options (expiring every Thursday) have extremely high OI, often exceeding 1–2 crore contracts in aggregate. The "max pain" theory suggests that the Nifty 50 tends to expire near the strike price where the maximum number of options expire worthless — the point of maximum pain for option buyers and maximum profit for option sellers.