Published on: May 13, 2024
OI-WASP levels marked with dotted red lines on Nifty 50 (75 Min) chart.
What is Open Interest Weighted Average Strike Price?
The Open Interest Weighted Average Strike Price (OI-WASP) is a weighted average, which tells us about where the most significant open interest lies within the option chain.
How to Calculate OI-WASP?
Steps to Calculate Open Interest Weighted Average Strike Price:
- Gather Data
I’ve taken 30-May-2024 Monthly Expiry of Nifty 50 Option Chain for 10 May 2024.
Remove all the columns except (Call OI, Put OI & Strike Price).
Create a column for sum of Call OI & Put OI. - Calculate OI Value of each Strike Price
Multiply the Call OI with Strike Price, to get Call_OI_Value.
Multiply the Put OI with Strike Price, to get Put_OI_Value.
Multiply the (Call OI + Put OI) with Strike Price, to get OI_Value. - Take Total Sum of OI Value
Calculate total sum of Call OI Value.
Calculate total sum of Put OI Value.
Calculate total sum if Call OI + Put OI Value. - Take Total Sum of OI
Calculate total sum of Call OI.
Calculate total sum of PUT OI.
Calculate total sum of Call OI + Put OI. - Calculate OIWASP
Divide Total OI Value of Call by Total OI of Call, to get Call OI-WASP.
Divide Total OI Value of Put by Total OI of Put, to get Put OI-WASP.
Divide Total OI Value of (Call + Put) by Total OI of (Call + Put), to get OI-WASP.
Importance of OI-WASP:
Identifying Price Levels of Interest:
OI-WASP highlights the Strike Price where a substantial number of contracts are held by traders, in the above example OI-WASP of Call Option is 22802, it means the weighted average strike price of call option is centered around 22800. And for put the OI-WASP is 21795, so, the weighted average strike price of put is approximately around 21800. And for the combined (Call + Put), the OI-WASP is 22274. And the spot closed at 22055.20, all these values are as on 10 May 2024.
Support and Resistance Levels:
OI_WASPs can serve as dynamic support and resistance levels. When the current market price approaches or reaches any of the OI-WASPs, traders expect heightened activity as market participants manage their positions, as a result breakout or reversals often occur around these levels.
Conclusion:
Open Interest Weighted Average Strike Price (OI-WASP) is a valuable metric that offers insight into the collective sentiment and positioning of traders within the options market. By identifying the key levels of interest and by gauging market sentiment traders can position themselves better in the market. Only two things can happen around the OI-WASP level, either it’s a reversal or a breakout.
