Deep Learning Tools for Predicting Stock Market Movements

3Analyzing Open Interest: A Vibrant Approach to Predict Stock Market Operator’s Movement

Avijit Bakshi

School of Business, Alliance University, Bengaluru, Karnataka, India

Abstract

Open interest in the derivative market is the total number of outstanding or open contracts that have not yet been settled or squared off. It increases when new entrants trade with each other in the future & options (F&O) market and decreases when existing position holders square off their positions. Tracking changes in spot price, open interest, and delivery data can provide insights into operators’ intentions. However, examining cumulative open interest and confirming the analysis with technical charts are important.

In future contracts, open interest should be treated as cumulative, whereas in options, it should be counted as an aggregate. The highest open interest on the call side indicates the resistance level, whereas the highest open interest on the put side indicates the support level. A put-call ratio of more than 1.1 is bullish, whereas less than 0.9 is bearish.

Checking the build-up of open interest in strike prices can help recognize anomalies or imbalances in underlying assets. Computing the critical price or weighted average price can help decode the buyer or seller in the option chain.

An analysis of data for a stock listed in both the cash market and the F&O segment over the last 3 months, along with technical chart analysis, can help traders and investors make informed decisions. However, ...