Do you ascertain the trend from options data (OI , MAX OI) or something else ?
Hi Singlap
Your question is not to clear in what direction you want to have it answered. Let me start with the following:
For daily trading on one script or a little few: The trend you better check on the chart on different time frames (Bigger to smaller) to have an idea about what the overall trend is. Then go to your time frame you trade and check the trend there.
Now on the bigger time frame you simple draw your horizontal lines where you see any support or resistance (Pivot lows or tops and levels where the line touches the most points on one level). This line you will also see in the chart with smaller time frames. After that you check the OI on the matrix and you have an idea how strong or weak those levels are. You even can draw the S and R levels through math tools and then compare the OI with those levels. So the OI helps more to have a better idea about ranges in the chart include S and R levels and less about what the whole trend is or further could be. If you understand it this way, you already do well with the use of OI.
Probably not the answer to what you expected to your not clear question to come out as answer. Why? If you can tell me or prove in a clear way to know who are the people who are responsible for any increase or decrease in OI on any strike level, then we have an other ground to discuss on. A ground for "Want to be anticipaters of the market". But kindly tell me: Do you know if this are shorter who move the OI up and down or are those buyers who move that OI up and down on those specific levels at any time?
So to me here is the crux in your question for using OI in daily trading to predict market directions. As I have not found any such proved ways which work at all the time to be clear who those responsible people are, I changed to what I just showed how to use OI on a daily basic most effective and not much for anticipation. Others have other ideas and I am sure they will post it. If you did not ask in those direction of using OI for such kind of trading, then you should have told this clearly in your post, as the question can direct in different ways. Any way: I will also spot a bit in an other direction:
Now here a little add to the above posted: As this is done on a daily basic, I any way will see if there is a very special event on any of the watched OI levels. It can happen that of a sudden in one of them a huge new position is token. So according to the existing trend or to other observations it can give us a clue from time to time that some thing is going to happen in a certain direction. But this is not the daily business and if you want to move on those road, then you best do watch many, many different scripts day by day to be aware of such specific events in all of them. Best to this is with a software who scans the whole market for such events (
Such software is used at the CME to scan all thousand and thousand of traded option strike levels on any underlying to find out such events) or you take your time day by day, search all your scripts for such events and only trade them. A very specific way of option trading. Now my question: Did you point in this specific direction and if so, why did you not post it? If you start to move this way, then let's know how you are doing and good luck to you.
Take care / Dan
Edit: Adding a lot of information.
