Options Trading Using Open Interest

Here to interpret open interest data for scalping →

Hey there!

In today's edition, we’ll learn how to interpret open interest data for an effective scalping strategy.

How to interpret open interest

Open interest tells us the number of outstanding derivative contracts (open positions) for an asset - such as options or futures, at a particular strike price.

The change in prices and open interest convey important information about the views of market participants

Taking a trade based on open interest

As it can be interpreted by the picture above, high open interest indicates high liquidity for a contract. Such times, i.e. Q1 and Q2 are excellent opportunities to trade.

Historically, the following 2 scenarios have been considered a ‘paradise’ when it comes to scalping in options:

Buyer’s Paradise (Q1)

1) When there is a >50% increase in open interest

2) When there is a >50% increase in price

Seller’s Paradise (Q2)

1) When there is a >50% increase in open interest

2) When there is a >50% decrease in price

Using ITM and ATM options yields the best results when it comes to this scalping strategy.

Note that you must look at other data points and indicators in addition to open interest before taking a trade.

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