Volume vs Open Interest for FNO

By Kumar Chandan
Overview
Volume in Derivatives

Open Interest

Difference between Volume and Open Interest

How to use Volume

How to use Open Interest

Understanding the Open Interest
 ● When you buy a derivative
(Option or Future) contract, but
you don’t sell it. This condition
creates one open interest.
● Say, you bought one lot of Nifty
Future contracts, you create an

Open Interest
open interest. This contract is yet
to close, so open in the market.
● As long as you are interested to
hold the contract, it will remain
open and called to be an open
interest.
Open Interest
● Thus, the term open interest signifies several derivative contracts open in the
market.
● A contract is open if it is Bought only or Sold only. That is you have Bought a
contract but have not sold it.
● You can also sell a contract but not buy it. In both conditions contract is open and
open interest increases.
● The contract is closed if it is bought and sold both. So open interest at a time
shows a number of contracts open or sold at a given time.
 ● Volumes simply indicate how
many shares are bought and sold
in a given period.
● An active share relatively has a
higher volume.
Volume ● One can see the volume as an
indicator of showing the strength
of a particular movement in the
stock.
 ● It gives liquidity for buying and
selling the stock quickly.

Volume ● If anyone trades in less active or

less liquid stock, he may be stuck
with the trade as he may not get
buyers or sellers for his trade.
Finding High and Low Volume
● High Volume = Today’s volume > last 20 days average volume
● Low Volume = Today’s volume < last 20 days average volume
● Average Volume = Today’s volume = last 20 days average volume
● You can use 20 days moving averages on the volume. If volume is crossing up that
20 days moving averages, indicate the high volume.
Volume vs Open Interest
● The OI tells us how many ● Buy 1000 contract = 1000 OI
contracts are yet to close in the generated (Yet to sell)
market whereas volume, on the ● Sell 1000 contract = 1000 OI
other hand, tells you how many generated (Yet to buy)
trades were executed on a ● In this case, we will have 2000
particular day. Open Interest.
● For every 1 buy and 1 sell, there
will be 1 volume. For example, if
there is
● 1000 contracts bought + 1000
Contracts sold = 1000 volume
generated.
Volume vs Open Interest
● If you sell your 1000 contracts that you have bought earlier, you will close 1000
open interest.
● Still, you have 1000 sell contracts open, which still indicates 1000 Open Interest.
● Now, if you buy this 1000 contracts, that you have sold earlier, will close your
1000 open interest.
● In other words, the closed open interest can be termed as the volume.
Volume vs Open Interest
● Open Interest is a continuous data.
● Volume is discrete.
● We have the total number of Open Interest in which subtraction or addition keeps
happen in Open Interest based on OI generation and closing whereas the Volume
counter starts each day.
● What I want to say is the open interest counter starts with the opening of the
series thus there is only one counter for entire series.
● If there are 22 trading days in a series then you will have 22 different counters for
volume that makes it discrete.
Interpretations of OI
● Trading Range: Trading range could be between the highest call strike and highest
put strike.
● Highest resistance: Generally, heaviest call open interest works as the highest
resistance for the index.
● Highest Support: Generally, heaviest put open interest works as the highest
support for the index.
● Pivot Strike: It is the strike where bulls and bears have almost equal interest. Tug
of wars go around this strike.
About Me
Founder : MBT, FNO trader, Data Analysts

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