Open interest (OI) is the number of derivative contracts that are still open: bought by someone and sold by someone else, and not yet closed or expired. It is one of the most watched numbers on an Indian option chain, and one of the most over-interpreted.
How OI changes
Every trade has a buyer and a seller. Whether OI changes depends on whether each of them is opening or closing a position.
| Buyer | Seller | Effect on OI |
|---|---|---|
| Opens a new position | Opens a new position (writes) | OI rises by the traded quantity |
| Opens a new position | Closes an existing long | No change: the position passes from one holder to another |
| Closes an existing short | Opens a new position (writes) | No change |
| Closes an existing short | Closes an existing long | OI falls by the traded quantity |
At expiry all OI of that contract goes to zero, because every contract is settled or expires.
OI vs volume
- Volume is a flow: how many contracts traded today. It resets every day.
- Open interest is a stock: how many contracts are outstanding at the end of the day. It carries over from day to day.
- High volume with little change in OI means positions are mostly changing hands. Rising OI on high volume means new positions are being built.
- On weekly index options close to expiry, volume can be many times OI because the same contracts are traded back and forth during the day.
The four buildup patterns
Market commentary in India often combines the direction of price and the direction of OI into four labels. They come from futures, where they are easier to interpret.
| Price | Open interest | Label | Usual reading in futures |
|---|---|---|---|
| Up | Up | Long buildup | New buyers are entering |
| Down | Up | Short buildup | New sellers are entering |
| Up | Down | Short covering | Sellers are closing positions by buying back |
| Down | Down | Long unwinding | Buyers are closing positions by selling |
Why options are harder to read
For an option, "price up" refers to the premium, which moves with the index, time and implied volatility. A call premium can fall with OI rising simply because time passed. And every new option contract has both a new buyer and a new writer, so rising OI alone cannot tell you which side was more eager.
What OI at a strike can and cannot tell you
A common habit is to treat the call strike with the largest OI as "resistance" and the put strike with the largest OI as "support", on the idea that option writers will defend those levels. There is some logic to it: large open positions mean many participants care about that level. But the evidence for it working as a reliable barrier is weak, for several reasons:
- You cannot tell from OI who is long and who is short, or whether the positions are hedged with futures or other options.
- Large OI often sits at round numbers simply because those strikes are popular.
- Positions shift during the day; a level with large OI in the morning can see it unwound by the afternoon.
- Index moves are driven by much more than options positioning.
Practical uses of OI
- Liquidity. Strikes with meaningful OI and volume usually have tighter spreads and are easier to exit.
- Context. Rising total OI shows participation is growing; falling OI near expiry is normal as positions roll or close.
- Position limits. Exchanges and SEBI set limits on how much OI a client can hold, and market-wide limits apply to stock F&O. Stocks that cross their market-wide position limit enter a ban period, during which you can only reduce positions.
Where OI numbers come from
Exchanges publish open interest for every contract at the end of each day, and the option chain shows intraday snapshots during the session. Intraday OI figures are updated periodically rather than with every trade, so two screens checked a few minutes apart can disagree. For decisions, rely on the figures from the exchange or your broker, and note the time they were taken.
OI is a description, not a signal
No OI pattern reliably predicts the next move. Use it to understand where positions are, and combine it with your own risk limits rather than trading on it alone.
Examples use illustrative values, not current market data. This is general education, not investment advice.