Find Support-Resistance using Open Interest

Learn to interpret open interest data โ†’

Hey there!

Today weโ€™ll discuss how one can use open interest data to find the support and resistanceย level of stocks.

Open interest tells us the total number of outstanding option contracts (open positions) at a particular strike price.

Note that the highlighted strike prices for the NIFTY50 option (expiring on 23rd November) in the picture below have the highest call open interest and put open interest ๐Ÿ‘‡๐Ÿผ

You can see that the 19,900 call option and the 19,700 put option have the highest open interest, i.e., maximum option contracts are being formed at those strike prices. These levels give important information about the views held by market participants.

The strike of a call option with the highest OI acts as a possible resistance level, while the strike of a put option with the highest OI acts as a possible support level.

When there is more than a 5% difference between the implied support and resistance levels, one can trade directionally within that rangeย as an option buyer, since a potential movement within that range can yield a meaningful profit.

However, if there is not enough gap between the two, or the highest call open interest and highest put open interest both are found on the same strike price, then one should avoid taking any directional bets. Note that such a situation is ideal for an option seller, who benefits from a sideways market.

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โœ…ย Learn to use open interest data for identifying suitable F&O trades

Learn to identify stocks, select the right strike price, and place the correct stop losses using open interest data in Ms. Jyoti Budhiaโ€™s Options Trading Using OI Data Course.

Use NL30 at checkout for a 30% discount โฌ‡๏ธ

None of the above stock ideas are intended as recommendations. Please consult a registered advisor before buying/selling.

โœ๐Ÿผ If you have any questions or want to say hi, feel free to write to us at [email protected]

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