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12/12/2015 How to interpret futures price and open interest ­ Moneycontrol.


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Jun 20, 2012, 05.14 PM | Source: Enter Company Get Quote GO

How to interpret futures price and

open interest
Every investment that we make- as players or as investors, is made on solid reasoning
and research. The research in turn is based on understanding market movements,
trends and indicators that allow us to understand what is expected to happen in the
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By Sahaj Agrawal, AVP- Derivatives, Kotak Securities

Every investment that we make- as players or as investors, is made on solid reasoning and
research. The research in turn is based on understanding market movements, trends and
indicators that allow us to understand what is expected to happen in the future.

Thus we come to the most important part of derivative investing understanding derivative

In stock market investing, we make decisions about what position to take on which stock
through careful analysis. Market participants have been doing this through two different yet
basic approaches: fundamental analysis and technical analysis. While Fundamental analysis
delves into the nitty-gritty of a Company’s financial performance as opposed to only its price
movements and answering where to invest and why, Technical analysis believes in a stock’s
performance history lends itself to expectations of how it will behave in the future. With the
derivatives market activity increasing by the day, the opportunities in the segment can be
lucrative if traded with the right parameters and insights. October IIP at 9.8%; consumer
durables grow 42.2%
As the name suggests, Indicators help in identifying possible changes that may optimize or
change current trends in any particular financial time series and selected parameters. In
Wall St drops as oil's multi-yr low
Derivative markets, Indicators play an important role in identifying market sentiment leading to adds to investor fears
possible movement of price.

Both Futures and Options Contracts have different sets of indicators that are carefully tracked.
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A common parameter across derivative contracts is the Open Interest or OI. Translated OI
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would mean the total number of Contracts - both Options and/or Futures that are still open i.e
that have not been closed in a particular trading day. Thus, Open Interest is the total number of
outstanding Contracts that are held by participants at the end of every day. While prevalent in
both markets, it is often used to confirm price movement trends and/or reversals in such
Contracts. Open Interest also allows for the tracking of buyers and sellers in the Contracts
Markets, ensuring one Buyer for every Seller. The Open Interest position calculated every day is VIDEO OF THE DAY
either positive or negative versus the previous day. More positions would mean more cash
inflows into the market, while a decline in positions would imply liquidity and that the prevalent­recos­fo/how­to­interpret­futures­priceopen­interest_720295.html 1/3
12/12/2015 How to interpret futures price and open interest ­

price movement has reached its end and it’s a time for  possible reversal.

Relationship between Price and Open interest

Price OI Position
UP UP Long
Down UP Short
UP Down Short Covering
Down Down Long Unwinding

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traits: Raamdeo
Futures analysts track price movements in premiums and discounts of Contracts in relation to
cash markets. Most of this evaluation is based on the relationship between Futures Contracts
and their corresponding spot prices also known as Cost-of-Carry. It primarily indicates the NEWS VIDEOS
sentiment of the participants on the basis of the premium or discount.
Nifty outlook still negative;
Options Contracts tend to consider two major indicators to invest. These are put-call ratio (PCR) breaching 7650 vital: Expert
and implied volatility (IV).

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Put Call Ratio as the name suggests is a ratio of the total number of put options by the total
in disguise: NTPC
number of call options. There are many variants of the same depending on the data used to
calculate it. Primarily there are two types PCR OI and PCR Volume.

1   2

READ MORE ON   Sahaj Agrawal, AVP­ Derivatives, Kotak Securities, stock market, Options Contracts


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