Option strategy based on Open interest on Options

Which options to sell with less risk. What is the range people are expecting for market

In this blog I am going to explain which options should we be selling as per what people are perceiving the market. It is generally observed that people sell out of money options. they will sell an out of Money call option and out of money put option. At these positions open interest increases. We are trying to leverage this data at which open interest values are higher. I have developed an algorithm which will suggest which are suitable options to buy or sell. This is a short strangle strategy where it suggests which options to buy or sell. This has more accuracy with Index options because of high liquidity. In stock options, we have less liquidity in Indian market and stocks are more volatile than index. Bets on stock options can go wrong.

How to use Open Interest options functionality at optionstrategy.co.in

1. Go to URL- optionstrategy.co.in and click on "My Stratgey"  button.
2. Now select Index stock which you want to analyze and then select script name.

3. Now click on Open Interest options button at left side.

4. You can see calls and puts with their respective strike prices populated. These vakues are suggested based on open Interest in market. We generally go for 4-5 strike prices lower and check for open interest where it is maximum.

In this scenario it has suggested us to sell at strike price of 6600 and sell a put at strike price of 6200.  The suggestion shown here is based on EOD prices.
Please ignore the valuation date as we are showing graph for multiple valuation dates.

In case you think this is not suitable, you can change strike prices and valuation date and click on My strategy button. 

Note:- These strategies are just for illustrative purpose. Users are required to use their own judgement before entering in any strategy. We are not responsible for any loss.

Please email us your suggestions and feedback at info@optionstrategy.co.in

Happy Trading!!!!

Futures Open Interest Analysis

Predicting market direction based on Futures Open Interest

In this blog, I am going to explain how we can leverage with Open Interest Analysis of Futures present at optionstrategy.co.in. I have back tested this functionality and have observed that it is accurate around 68%.

Back testing strategy

I collected the nearest expiry futures open interest data for past 6 month. I observed the trend for futures and price. I took the difference between T and T-1 days' open interest and price , T and T-2 days, T and T-3 days' open interest and price. I gave maximum weightage to nearest day differences ie. T and T-1. I observed that if they were in same direction, the trend continued and if they were in opposite direction  the trend reversed. I assumed that we were buying at days end of price and next days close price was at which were selling. 
The success rate for this observation was approx 68%. 

How to analyze Open interest at your own

1. Go to URL optionstrategy.co.in and click on "Open Interest Futures" menu button at left.

2.Now select one of the available script. I have used specific scripts which are more liquid.

3. Default number of days shown is 3. You can change the number of days if you want to do analysis of more data. I prefer generally 3 days.
4. Click on OI indicator button.

5. A graph will appear below. Check out how the price and open indicator are varying.

 

In this graph you can see blue bars are showing % change in Open interest and red bars are showing % change in price. Orange bars just represent their multiplication to see what is their net effect. 

Generally, if open interest and price move in  same direction then this trend is expected to continue. I am representing them with bar in positive direction. This represents that current trend whether it is increase or decrease in price will continue. If this bar is in negative direction then it means the current trend is going to reverse soon. here is one sample graph based on DLF open interest  movement.

We also need to see how strong this impact is. open interest change should be greater than price change. If open interest change is minor, then we should ignore it. 

 

There could be chances that T and T-1 is showing positive direction and T and T-2 are showing negative direction.  In such scenario, I would advise not to use this indicator. Give maximum weightage to nearest date differences.

Mail us your queries at info@optionstrategy.co.in

Happy Trading!!!