The document discusses open interest in derivatives markets. It defines open interest as the total number of futures or options contracts that have not been closed or delivered on a given day. The document explains that open interest increases when a new long position is opened and decreases when a position is closed. It provides examples of how open interest changes with different trading activities. The document also discusses inferences that can be drawn from changing open interest levels and trends in the underlying price.

1. Open Interest
(Derivatives Classroom- Series II)
Description
“Volume & Open Interest are the most important parameters for judging the Futures & Option markets. Volume
can simply be defined as the number of contracts traded on a particular day. Open Interest is slightly more complex
data.”
The Open Interest figure for a given futures/option is the number of contracts outstanding at any given point of time.
The Open Interest increases when trader “A” opens a new position by buying a futures/option contract from trader
“B” who did not previously hold any position in that futures/option contract (“B” will said to be holding a "Short
Position" in the futures/option contract). When trader “A” closes out the position by selling the futures/option
contract, the Open Interest would either remain the same or go down. In brief the Open Interest is the total numbers
of futures/option contracts that are not closed or delivered on a particular day.
Trade Day Trading Activity Open Interest
Client A buys 2 futures contract of Reliance and
Monday 2
Client B sells 2 futures contract of Reliance.
Client C buys 10 futures contracts of Reliance and
Tuesday 12
Client D sells 10 futures contracts of Reliance.
Client A sells 1 futures contract of Reliance and
Wednesday 11
Client D buys 1 futures contract of Reliance.
Client E buys 7 futures contracts of Reliance and
Thursday 11
Client C sells 7 futures contracts of Reliance.
On Monday Client A and Client B buys a future contract, which increases an open interest and also creates
trading volume of 2
On Tuesday Client C and Client D creates trading volume of 10 and there are also 10 more contracts that are left
open this brings the total open interest to 12 contracts
On Wednesday Client A and client D takes an offsetting position and therefore open interest is reduced by 1,
and trading volume is 1
On Thursday, Client E simply replaces Client C and therefore open interest does not change, trading volume
remains at 7

2. Option Interest
(Derivatives Classroom- Series II)
Inferences
Increasing OI with increase in price trend is considered positive –
With increase in OI and the market price, the trend shows bullishness on the back of addition of more long positions
for every short position in the futures market. Investors are turning positive and going long for the stock, which is
evident by the upward price movement.
Increasing OI with decrease in price is considered negative –
With increase in OI and fall in the market price the trend shows bearishness on the back of addition of more short
positions for every long position in the futures market. Investors are turning negative and price is falling with selling
pressure coming due to increasing negativity in the specific stock.
Decreasing OI with increase in price trend is considered positive –
With decrease in OI and rise in the market price the trend shows bullishness on the back of covering up of short
positions in the futures market. With the short covering happening due to investors getting caught on wrong foot,
escalates the price well over the normal levels.
Decreasing OI with decrease in price trend is considered negative –
With decrease in OI and fall in the market price the trend shows bearishness on the back of closing up of long
position in the futures market. With Investors booking profits and adding up short positions to get the benefit of the
fall in the markets adds to the selling pressure, shows the bearish trend in prevalent in the market.
Comprises of
Option Basics
(Derivatives Classroom- Series I)
Comprises of

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