Open Interest – Varsity by Zerodha
zerodha.com/varsity/chapter/open-interest/
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if there is an abnormally high OI backed by a rapid increase or decrease in prices then be cautious. This situation simply means that there is a lot of euphoria and leverage being built up in the market. In situations like this, even a small trigger could lead to a lot of panic in the market.
wealth is transferred from buyers and sellers (or vice versa) and no new wealth is created (like if you hold a stock and stock price appreciates, then everyone makes money). For this reason, derivatives are often termed as a zero-sum game!
OI is not discrete like volumes, OI stacks up or reduces based on the entry and exit of traders.
OI and volume change on a daily basis. Today’s volume has no implication on tomorrow’s volume. However, it is not true for OI. From a stand-alone perspective both OI and volume numbers are pretty useless. However traders generally associate these numbers with prices to draw an inference about the market.
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