Published on: August 29, 2024
Imagine being able to predict the market’s next move just by glancing at a single chart. This isn’t a magic trick—it’s the power of understanding the Open Interest chain.
The Open Interest (OI) chain is vital data for traders who wish to decode market sentiment, build effective strategies, and make informed trading decisions. The Open Interest chain provides valuable insights into the number of outstanding contracts, indicating the strength and direction of the market. In this article, we will explore how to read the Open Interest chain, its impact on strike prices, and how traders can leverage advanced tools like the Option Chain in RZone and Opstra by Definedge to analyse key option Greeks—Gamma, Vega, Theta, and Delta—for strategic trading.
What is Open Interest (OI)?
Open Interest refers to the total number of outstanding derivative contracts, such as options or futures, that have not been settled. Unlike volume, which measures the number of contracts traded within a specific period, OI reflects the total open positions in the market.
Significance of Open Interest:
1. Market Sentiment: High OI in options at a specific strike price often indicates a significant interest in that level, either as support or resistance.
2. Liquidity Indicator: Higher OI means more participants, leading to better liquidity, tighter spreads, and more efficient price discovery.
3. Confirmation of Trends: When OI increases alongside rising prices, it usually confirms an upward trend, suggesting new money entering the market. Conversely, rising OI with falling prices often indicates a bearish trend.
How to Read the Open Interest Chain
The Open Interest Chain is a tabular display that details various strike prices of an option along with corresponding OI, volume, and other parameters. Here’s how to read it:

Source: RZone
1. Strike Price: The price at which an option can be exercised. Strike prices are listed in the centre of the OI chain, separating call options (on the left) from put options (on the right).
2. Open Interest (OI) Data: This shows the number of open contracts for each strike price. Comparing OI at various strikes helps identify significant levels of interest.
3. Volume: The number of contracts traded within a given period. High volume coupled with high OI suggests active trading and robust market interest.
4. Change in OI: This represents the difference in OI from the previous trading day. A significant change in OI, either increasing or decreasing, can signal the entry or exit of large players.
The Impact of the Highest OI on Strike Price
The strike price with the highest OI is often a significant level in options trading. Due to the large number of open positions at that level, it typically acts as a psychological barrier or magnet for price action.
Impact of Highest OI on Strike Price:
Resistance and Support Levels: In call options, the strike price with the highest OI can act as a resistance level since traders are vested in keeping the underlying price below this level. Similarly, input options, the highest OI strike can act as a support level, as traders would prefer the price to stay above this level.
Price Magnet Effect: Sometimes, the price tends to move towards the strike price with the highest OI, especially as the expiry date approaches. Traders adjust their positions around these levels, increasing buying or selling pressure.
Shift in Market Sentiment: A sudden shift in the highest OI to a different strike price can indicate a change in market sentiment. For instance, if the highest OI shifts upwards in call options, it might suggest bullish expectations, while a downward shift in put options might indicate a bearish outlook.
Creating Strategies Using Open Interest
Leveraging the Open Interest chain can help traders devise strategies that align with market sentiment and predict potential price movements. Here are a few strategies based on OI analysis:
1. Long Straddle: If the OI suggests significant accumulation at a particular strike price, but the direction of the breakout is uncertain, a long straddle can be a viable strategy. This involves buying both a call and a put option at the same strike price and expiration, benefiting from any substantial move, regardless of direction.
2. Iron Condor: When OI suggests that the market might stay within a specific range, traders might use an iron condor strategy, selling out-of-the-money call and put options while buying further out-of-the-money options to limit potential losses.
3. Short Strangle: If there is a significant buildup of OI at a specific strike price with low expected volatility, a trader might sell both a call and a put option at different out-of-the-money strike prices. This strategy profits from a market that remains stable around the strike price.
4. Covered Call: If the OI indicates resistance at a specific strike price, and the trader holds the underlying asset, they might sell a call option at that strike price, generating income while potentially capping upside gains.
Using Advanced Option Chains in RZone and Opstra by Definedge
Tools like the Option Chain in RZone and Opstra by Definedge provide advanced analytics to help traders analyse options more comprehensively. These platforms allow traders to access detailed OI data and advanced Greeks—Gamma, Vega, Theta, and Delta—to understand options behaviour better.

Source: Opstra
1. Gamma: Measures the rate of change of Delta relative to the underlying asset’s price. High Gamma indicates that Delta will change significantly with small movements in the underlying asset, highlighting potential volatility.
2. Vega: This indicator reflects the sensitivity of an option’s price to changes in the underlying asset’s volatility. Traders use Vega to gauge how an option’s price might change with shifts in market volatility, which is crucial for strategies like straddles or strangles.
3. Theta: Represents the rate at which an option loses its value as it approaches expiration. Options closer to expiration typically have higher Theta. Analysing Theta helps traders understand time decay, which is vital for strategies like writing covered calls.
4. Delta: Indicates how much an option’s price is expected to change per unit change in the underlying asset’s price. Delta is fundamental for directional strategies and hedging, as it provides insight into the option’s sensitivity to price changes.
Leveraging RZone and Opstra:
Detailed Analysis: These platforms provide comprehensive data on OI and option Greeks, allowing traders to make more informed decisions.
Strategy Builder: Opstra offer features that let traders back-test strategies based on historical data and analyse potential outcomes based on current market conditions.
Real-Time Data: Access to real-time data helps traders stay updated on market movements and make timely decisions, especially when using strategies that rely on OI and volatility changes.
Understanding and analysing the Open Interest chain is a powerful tool for traders looking to decipher market sentiment and build effective strategies. By combining OI analysis with advanced tools like RZone and Opstra, traders can leverage detailed data on option Greeks to enhance their trading strategies, making informed decisions based on market dynamics and volatility. Whether it’s identifying key support and resistance levels or devising complex strategies, mastering OI and using the right tools can significantly enhance trading performance.