OI - Understanding Option Chain Excel
OI - Understanding Option Chain Excel
OI - Understanding Option Chain Excel
OI - Open Interest
Chng in OI - Change in Open Interest
IV - Implied Volatility
Volume - Volume and Of course the
Strike Price
1. Find out the Strike Price and OI, where we have the MAX OI in PE - MAX_OI_PE
2. Find out the Strike Price and the OI, where we have the MAX OI in CE - MAX_OI_CE
3. Find out the Strike Price and CHG in OI, where we have the MAX Change in OI in PE -
MAX_CHGOI_PE
4. Find out the Strike Price abnd CHG in OI, where we have the MAX Change in OI in CE -
MAX_CHGOI_CE
Rule 1: If the MAX (CHG in OI) @ PE > MAX (CHG in OI) @ CE, then it is
a Bullish market.
Rule 2: If the MAX (CHG in OI) @ PE < MAX (CHG in OI) @ CE, then it is a BEARish market.
Rule 3 : For Postional/Swing Trading use the OI instead of the CHN in OI and the same rule
as Rule 1 and Rule 2 will follow.
Rule 4: Does Volume in the Options Chain data play any role in our decision making?.
Yes. Use the Volume data to decide whether it is STRONG BULL or a STRONG BEAR.
Another Observation : So go for Naked Long in CE/PE only when the Volume at the Strike
Price > CHG in OI.
NO. This might not work during the last week of Expiry when the Market makers are closing
their positions. So during the last week of Expiry better to stay away from the market or Play
the market using the Implied Volatility
Rule 6: In the CHG in OI, what if we get Negative values? What signals does it give?
If we get the Negative values in "CE", that means Market makers (BEARS) are squaring off
the Call Positions (The SHORT Positions). So heavy squaring off in CE is a BULLISH signal and
we have to expect a BREAKOUT if there is a sudden spike in the squaring volume. There is a
panic situation. Normally this will happen all of a sudden in say 10-20 minutes and we have
to exit the Shorts immediately and can GO LONG.
If we get Negative Values both in PE and CE, then blindly SELL the OI pair
Rule 7: OK. For Intraday trading, based on the "CHG in OI" I got the Bullish or Bearish
signal. Can I go and BUY the Options? How do I decide whether to BUY/SELL the
option?.
Unless if it is a Strong BULL or a STRONG BEAR, the Safe strategy would be to SELL the pair
so that it is less risky. I mean if we get the Range as 5800PE and 6000CE. Then Sell 5800PE
and 6000CE.
Rule 7B: No I don't want to do Pair Trading. I want to take more risk and do some
naked Calls / Puts. How do I decide whether to BUY/SELL.
Use the Implied Volatility. I normally take the top (most traded) 5 Strikes and calculate the
Average PE and CE volatility.
Rule 8: Respect the Strike Price where the MAX Pain is situated
The Strike where the MAX Pain is like the Centre of Gravity. So especially during the Expiry
the market will try to move and will try to expire around the MAX Pain. So in the last week
of expiry one should avoid any OTM call around the MAX Pain because the OTM calls
around the MAX Pain will expire worthless.
For Example in Jul13 Expiry the MAX Pain on 22-Jul-13 is at 6000. So any 6100, 6200,... Calls
will expire at Zero value. Similarly for 5900PE, 5800Pe, etc,,,