SOMEBODYS GOLDEN WORDS IN THIS THREAD MAYBE, I DIDNT RECALL NAME BUT THANKS FOR THIS, JUST ONE QUESTION- WHEN YOU SAY OI INCREASE WITH PRICE YOU MEAN WHICH PRICE PRICE OF UNDERLYING OR PREMIUM PRICE, THANKS ONCE AGAIN FOR THIS NICE COMMENT
ANIL
Basically the options market is predominantly driven by CALL WRITERS and PUT WRITERS to hedge their existing positions or to eat away the premium using time decay by predicting the trend of the underlying. In no way options market is used to trade CALL and PUT. However, small traders trade in options market either without knowledge of the risk involved in trading options or out of greed of making fast money. Thus WRITERS are always right in options market.
CALL WRITERS ARE CONSIDERED AS GENERALLY HAVING A BEARISH VIEW
Thus CALL WRITER wishes that the value of the underlying must fall and in turn the premium will decrease thereby the CALL WRITER can book the premium received. Thus, any increase in OPEN INTEREST at any particular strike of a CALL suggests that the underlying will not go ABOVE that STRIKE. In other words the underlying will remain below that STRIKE. In case if the CALL WRITER feels that the underlying will surpass that STRIKE, CALL WRITER will start squaring off his position leading to a DECREASE in the CALL OPEN INTEREST at that STRIKE suggesting that the underlying will go ABOVE that STRIKE.
PUT WRITERS CONSIDERED TO BE HAVING A BULLISH VIEW
Similarly PUT WRITER wishes that the value of the underlying must increase and in turn the premium will decrease thereby the PUT WRITER can book the premium received. Thus, any increase in OPEN INTEREST at any particular strike of a PUT suggests that the underlying will not go BELOW that strike. In other words the underlying will remain above that STRIKE. In case if the PUT WRITER senses that the underlying will go below that STRIKE, PUT WRITER will start squaring off his position leading to a DECREASE in the PUT OPEN INTEREST suggesting that the underlying will go BELOW the strike.
ACCUMULATION
If OPEN INTEREST increases and the price also increase, it suggests that accumulation is taking place.
WRITING
If OPEN INTEREST increases and the price decreases, it suggests that writing has been done.
