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Open Interest: A tool to put market expectations into perspective

The Reduction in both Price and Open Interest could be labeled as Long Unwinding and on the flipside of the same logic, Increment in Price with Reduction in Open Interest could be seen as Short Covering

April 13, 2019 / 12:27 PM IST

Shubham Agarwal

We all know Futures and Options, or for that matter, any derivative instrument would actually sum up to have a zero-sum pay-off, considering there is a Long for every Short. However, in an attempt to make these bets, we do find traders like you and me, we end up painting a picture of our mood in totality.

Today, let us have a look at one such data point and try to gauge if we can, some sort of directional perspective on the underlying. The data in analysis would be that of Open Interest and the subject matter of such observation would be Futures.

Open Interest, as we all know, is nothing but accounting of total number of contracts outstanding as on that time in any particular instrument. Having said that, unlike volumes, every new Buying and Selling may not account for fresh Open Interest.