What is Open Interest (OI)?

Open Interest (OI) means the total number of open futures and options contracts for a strike or instrument.
It shows how many traders still have active positions.

Example:
If Nifty 22500 CE has OI = 1,20,000, it means these contracts are still not squared off.

How OI Works

• New buyer + new seller enter → OI increases
• Both square off → OI decreases
• One exits + one enters → OI remains same

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How to Read OI Data

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Long Buildup & Short Buildup

1. Long Buildup

Price ↑ + OI ↑ = Buyers entering aggressively.

2. Short Buildup

Price ↓ + OI ↑ = Sellers expect a bigger fall.

3. Short Covering

Price ↑ + OI ↓ = Shorts exiting, trend turning bullish.

4. Long Unwinding

Price ↓ + OI ↓ = Buyers closing positions, weakness.

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What is IV (Implied Volatility)?

IV is the market’s expectation of future volatility.

High IV → Big movement expected (fear, event, uncertainty).
Low IV → Stable market expected.

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How IV Affects Option Premiums

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What is IV Crush?

IV Crush is a sudden drop in IV after major events such as:

• Union Budget
• Elections
• RBI Monetary Policy
• Quarterly Results

When IV drops → premium falls sharply.

You may lose money even if your direction is correct.

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What is IV Spike?

IV Spike happens due to fear, uncertainty, geopolitical events, global market panic, or upcoming major news.

When IV rises → option premiums become very expensive.

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Option Greeks

Delta

Shows how much option premium changes if underlying moves by Rs 1.

Theta

Time decay — premium falls with every passing hour/day.

Vega

Shows how much option price changes when IV changes.

Gamma

Shows how fast Delta changes.

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Using OI + IV Together

• OI tells what traders are doing
• IV tells what the market expects

Examples:

If Call OI rises + IV rises → Strong upside expectation.
If Put OI rises + IV rises → Downside fear or risk-off sentiment.

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Final Summary

• OI = open contracts in the market
• IV = expected volatility
• Long/Short buildup shows trend
• IV crush reduces premiums sharply
• Greeks help understand option pricing
• OI + IV together improve accuracy