iCharts Discussions

[singh.ravee]

casper,
i now read ur entire explanation on reliance feb future. sounds logical.

Let me share How i understand open interest:
For shares, company say reliane issues a particular number of shares which change hands and thats why volume.

For Futures, on day 1 there is zero quantity of future lot available. When person A sells 1 future lot and person B buys 1 future lot, an open interest of 1 is created. There is a simaltaneous buyer as well as seller to create an open interest. In other words when someone is shorting someone is going long. Now person A and person B has open position. At the expiry the reverse happens, person A now buys 1 future lot and person B sells 1 future lot and open interest vanishes.

Kindly clarify on this first, I will ask rest of questions later.

thanks and regards

ravee

[casper]

[singh.ravee]

casper bhai,
i m also saying the same.
for every buyer there is a seller. So from does the question of long build up or short buildup arised. I think its equal build up.

How can we say its a short build up in reliance. For every seller a corresponding buyer is there, so its an equal buildup. This is what i m trying to say.

I think this weekend i need to revisit OI lessons.

regards

ravee

[Ravi_S]

Ravee... Just have a look at this your question might be answered...

Have a look at the attachment and read the one below

-On January 1, A buys an option, which leaves an open interest and also creates trading volume of 1.
-On January 2, C and D create trading volume of 5 and there are also five more options left open.
-On January 3, A takes an offsetting position, open interest is reduced by 1 and trading volume is 1.
-On January 4, E simply replaces C and open interest does not change, trading volume increases by 5.

[amitkbaid1008]

Hi all

I would support Ravee's views.

For me its quite simple questions and I asked each and every one who has his leg in stock market but found not a single satisfactory reply.


Question is Open Interest or Positions cannot be created in vacuum. Hence there should be some buyer for each seller then there is no question of Shorts Being created, Long unwinding, Profit Booking on higher levels etc.

I can provide you exactly opposite or confusing terminology for every such kind of phrase.

These are the phrases used by hi-fi professional to confuse simple people like us.

[casper]

hii ravee and amit sir

before this confusion grows more and more let me tell u something, what u r pointing out, is very valid point, that with out selling how can another one buy? and without buying how can another one sell

but the idea of OI is not like that, i asked ravee this question only to elaborate this

open interest, let us break this word, open + interest, the interest in an instrument which is still open

say i am buying nifty, so my interest is to make profit from price rise, why i shall open this interest? i will keep it open if and only if i foresee a chance to earn more

i am selling nifty, why shall i keep it open? simple i will expect it go down lower and lower, thats why

now let us not consider the guy who is holding a loosing position, becoz before an operator, or FII, he is nothing and when we say increase in OI/decrease in OI, only the change of OI is notified not the total Oi

now let us come to a scenario

suppose u two are bears, and i am a bull

u will sell nifty fut and i will buy nifty fut


now today what happened?


both of u sold like hell and i bought like hell, but price went down, so who has won the battle?

its u

so who is smarter among us? its u, clear? coz u have won and i have lost


so u r the smart money and i am the poor ichartian fellow who buys low to sell even lower


am i clear so far?

now let us take a break here, what we want to find from OI? we want to know, every day bull and bear is fighting in the market, but who is likely to win? thats all


now under the scenario its clear that u have own and i booked loss, bcoz only a fool will trade with out sl, so i have booked loss by selling lower


now tell me whose position is open? only the winning position is open, its ur position

now price gone down, OI increased means only shorter's position is open, why they have kept it open? why they have not booked it? simply bcoz they want to earn more and they are almost sure that it will go down thats why they are risking their winning position to earn even more

since as per our assumptions, u r the smart people (its not about mental smartness, its about the money power only) so we have reason to believe that u will make the market fall even more

(how u will make it fall even more, plz dont ask me, let it remain as secret, that why we call them smart)

so when we say price going down but OI increasing is short build up, r we wrong? or trying to confuse u?

let us think it differently

if in the above scenario, u have won and i have lost still u also closed ur position, then what will it indicate?

it will show that u were suspicious about the price move so u booked ur profit

that means, smart boys are thinking that nifty will not go down, so chance is it will bounce back naa?


remember, i closed my position by covering loss, and u closed ur position by booking profit, so overall, the OI will never increase

so when we say, price going dow and OI is decreasing, means its a bullish sign, r we wrong?


i hope it help u to understand the thing better. if u still have question, then u r welcome as always

i would say, in a single word, OI interpretation not about buying or selling, its about understanding the psychology of the market participant

its an indicator, its not like a holy grail, it also has its draw backs as well

but it has its benefit too, and this benefit can be get if its applied with a sound out look and calm mind

it is not like that, "casper is recommending so its a must in my trading strategy", it is so helpful on its own that it needs no bodies recommendation

[casper]

just a request


i wrote that article and i write every day just to help u with whatever lil bit i got in my mind,

u may like it or not, its no harm, but plz plz plz, give me feed back

its most important thing for me, as if this is my wages

[chetan83]

[singh.ravee]

Hi,

Now dust seems to be settling down. Now understood what OI is all about. Its another tool to understand the psychology of big boys; where they are putting thier money. Its not a tool to take entry and exit; as I have been doing it in the past.

Another thing that got cleared in last few days is that "Trend Supercedes All". Anything and everything should be analysed as per the prevailing trend and not in isolation. As of now higher lows and lower highs are two parameter to understand uptrend or downtrend respectively.

Thanks and Regards

Ravee

[shekharinvest]

[jsargunam]

Excellent Casper.

[singh.ravee]

Ravi Hi,
With inputs from seniors, the OI concept is now clear.

Few Points regarding Reliance OI:
1. total OI till 19 jan 2011 = 1071750
2. decrease in OI on 2 feb 2011 = 1140500.

As per the figure posted by you, OI decrease when an existing Buyer and an existing seller cover their respective position.

Can we conclude that smart money i.e. big boys who started this downtrend have booked their profits (partial or full) as of now.

Thanks and Regards

Ravee

[jsargunam]

I think in a bull market the action of buyers counts, who buy more and more futures in the hope of price going further up. And in a bear market the action of sellers counts who write more and more futures in the hope of price coming down further. Am I right?

[casper]

[jsargunam]

In the news channel we hear about writing calls and puts at certain levels and the prediction that nifty has support/resistance at those levels at which puts/calls are written. Is it a reliable indicator of the nifty trading range, atleast for the next day? If we can take it as a rough guide for next day's trading what are those levels as of today?