10 Reasons Why You Should Not Follow The Open Interest Data


research analysts and traders to predict the market trend with the help of Open Interest data released by the exchange at the end of the day's trade. There’s no denying the fact that the open interest data looks extremely sophisticated. It gives one the feeling of “I know the positions of FII’s and Propriety traders in the market”. Truth be told, the open interest data is a delayed indicator. Most traders make the mistake of trading options based on open interest data which is 24 hours delayed. Below are 10 reasons why the open interest data should not be used to trade futures and options. 

Open Interest Myths Busted

1.    Open Interest is a report of the outstanding position which changes every moment
2.    OI data cannot decide the trend as market trends don’t change every moment.
3.    Profits can only be made by trading what few people know, not by following what everyone knows from the open Interest
4.    OI shows the outstanding position of the previous day, hence a 24hour lag.
5.    Market prices move first based on the laws of demand-supply, open interest follows thereafter
6.    Options are hedging tools hence market makers use them to protect their existing positions and not to set the trend
7.    Open interest does not measure option premiums accurately, as it does not adjust theta decay
8.    Time value has a negative impact on option buyers, the OI data does not take that into account
9.    Open Interest data provides the combined output of Nifty and Bank Nifty trades, which often confuses traders
10.    The accuracy of open interest data is negligible during expiry due to position shifting
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A Lagging Indicator

It has become a fashion amongst market gurus, research analysts and traders to predict the market trend with the help of Open Interest data released by the exchange at the end of the day's trade. There’s no denying the fact that the open interest data looks extremely sophisticated. It gives one the feeling of “I know the positions of FII’s and Propriety traders in the market”. Truth be told, the open interest data is a delayed indicator. Most traders make the mistake of trading options based on open interest data which is 24 hours delayed. Below are 10 reasons why the open interest data should not be used to trade futures and options. 

Open Interest Myths Busted

1.    Open Interest is a report of the outstanding position which changes every moment
2.    OI data cannot decide the trend as market trends don’t change every moment.
3.    Profits can only be made by trading what few people know, not by following what everyone knows from the open Interest
4.    OI shows the outstanding position of the previous day, hence a 24hour lag.
5.    Market prices move first based on the laws of demand-supply, open interest follows thereafter
6.    Options are hedging tools hence market makers use them to protect their existing positions and not to set the trend
7.    Open interest does not measure option premiums accurately, as it does not adjust theta decay
8.    Time value has a negative impact on option buyers, the OI data does not take that into account
9.    Open Interest data provides the combined output of Nifty and Bank Nifty trades, which often confuses traders
10.    The accuracy of open interest data is negligible during expiry due to position shifting
 
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