Open Interest
Saurav asked here
Is there any relationship between the performance of a stock with its open interest and volume?
And so I would try to answer this question in as simple terms as I could.
First I would like to tell there is not much inference you can derive from volume. The only thing it helps is if stock moves with good volume it suggests there are lots of activity within the stock.
Now coming to open interest its a large area but I would try to keep it as simple and short as possible. First the Definition from Stock Market Terms
- Open Interest
- Open interest are open contracts which refers to the total number of contracts, that have not been settled or squared off. For each buyer there must be a seller. So when either of the buyer or seller opens the contract and till he does not square off the contract, it is open and sum total of all such open contracts is called open interest.
From the definition its quite clear that if open interest is 1 implies 1 long or 1 short position and so there is nothing much that can be inferred from this but if you combine open interest with price movement of stock you can get the idea of how the stock can move in future.
| Price Move | Open Interest | Inference |
|---|---|---|
| Up | Increase | Increase in long positions as many new investors are putting in new money into the market. Truly Bull Pattern |
| Down | Increase | Shorting is main reason for prices to move down but as there is increase in open interest short squeezes some time soon and bull patter would start. This should be good time to get into the market. |
| Up | Decrease | Mainly a bearish outlook and people are covering their short positions which is main reason for increase in price. |
| Down | Decrease | Complete bearish sign as short positions are only built in the market. |
I have tried to create a chart for open interest rules but the above Rules are not complete and there are many other rules about sudden price movement and open interest change. You can read all of them by Martin Pring in his book Martin Pring on Market Momentum.
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Hi Shabbir.
thanx for the topic of open interest. You have explained in very easy understable language.
Where can we find the open interest for different stocks?? which is the website?? can we get it in bseindia.com
I use my trading platform to get that number and I am not sure where else you can find that data live.
hello sir,
i really appreciate for the useful information provided by you……i have a doubt regarding the open interest and volumes…….sir is it a storn signal or a weak signal if both OI and volumes go down?plz clarify the doubt and even the sentiment behind that kind of movement.
Vinod, Refer the table as that has the condition you are having doubt.