If you are an intraday trader and you trade mainly in nifty options. Then you should be keeping a track of the open interest at the nearby strike price. As nifty options open interest chart can be of great help in finding the highest open interest levels.
The call option which has the highest open interest is usually near-term resistance level. Whereas the highest open interest amongst the put option is the near-term support level.
Why would these levels work as support and resistance?
Option writers (sellers) are the traders with huge capital like FII, Hedge Funds, Large Institutions. Also, option writing needs huge capital, which small retail traders cannot afford. We know in options trading the option writers makes money consistently and option buyers lose every time. These option writers do a lot of analysis and research before taking any big positions. So the levels of highest open interest are the areas where these traders are betting upon.
How to trade using Nifty Options Open Interest Chart:
- Look for the strike prices which as highest open interest (in both call and put).
- Now check the daily chart of Nifty Spot. If these highest open interest levels coincide with the support/resistance levels. Then we are good to go to step 3, if they don’t coincide then simply wait and watch.
- Sell the highest open interest strike call and put option. (In this case, we are writing options for credit premium). This position is called as short strangle.
- Hold these position for at least 3 – 5 trading sessions.
- Always keep an eye on nifty option OI chart. If this highest open interest range changes then we will have to adjust accordingly.
- Chances are you will make money in 3 trading session. If Nifty does not make any significant move in one particular direction.
- These type of trades are best to take on the day of expiry, as the premium for the next series will be very high. We will be taking the position on the next expiry series and not the current series. One can also check the max pain level for a confirmation.
[LIVE] Nifty Options Open Interest Chart:
Trading in options can be extremely profitable if you trade with lowest brokerage trading accounts. If you are still losing money then can improve your chance of success by learning technical analysis.