The option chain provided by Infosys displays trades for various strike prices and expiration dates. The open interest is an important figure that most traders track, showing the current number of call and put contracts. But it must not be considered as an isolated component. Open interest, trading activity and option premiums, and share prices can give greater context. A demat account is used by investors to electronically keep securities in their name and a linked trading account is typically employed for placing orders. These fundamentals can be of great value when analyzing option chain information.
What is open interest?
Open interest is the total number of option contracts that are still active and have not been closed, exercised or expired. It can be added to new contracts and deducted from when positions are closed.
For example, when a buyer and seller create a new options contract, open interest rises. It differs from volume, which shows the number of contracts traded during a period. Investors using a demat account can use open interest as one indicator when reviewing option chain activity.
What is call open interest?
Call open interest represents the outstanding contracts for call options at different Infosys strike prices.
A call option gives the buyer the right, but not the obligation, to buy the underlying shares at the specified strike price, subject to the contract terms. Traders may examine call open interest across different strikes to see where outstanding call contracts are concentrated.
What is put open interest?
Put open interest represents the outstanding contracts for put options across different strike prices.
A put option gives the buyer the right, but not the obligation, to sell the underlying at the specified strike price, subject to the contract terms. Like call open interest, put open interest can be compared across different strikes and expiry dates.
A concentration of put open interest at a particular strike indicates significant outstanding activity at that level. It does not, by itself, establish that traders expect the stock to rise or fall.
Key difference between call and put open interest
The basic difference is the type of option contract represented. Call open interest relates to outstanding call contracts, while put open interest relates to outstanding put contracts.
Both figures can be useful when studying how activity is distributed across the option chain. However, interpreting one side without considering the other can provide an incomplete picture.
Why changes in open interest matter
The absolute open interest number is only one part of the analysis. Changes in open interest can provide additional information about how the number of outstanding contracts is changing.
If open interest rises, new positions may have been created. If it falls, positions may have been closed or otherwise removed from the outstanding contracts. However, open interest alone cannot establish whether fresh positions are bullish or bearish.
Open interest and trading volume
Volume and open interest are often viewed together because they measure different aspects of market activity.
A high-volume strike may have many contracts changing hands during a session, but this does not necessarily mean that a large number of contracts will remain open. Conversely, a strike with substantial open interest may not experience unusually high trading volume on every day.
Role of strike price and expiry
Open interest should also be viewed according to strike price and expiry. The same stock can have numerous option contracts with different strike prices and expiry dates.
An option close to expiry can behave differently from one with several weeks or months remaining. Time to expiry affects the option premium and its sensitivity to changes in the underlying stock.
The relationship between the Infosys share price and individual strike prices is therefore important when analysing the option chain.
How investors can read the Infy option chain
When reviewing the infy option chain, investors can first identify the current Infosys share price and nearby strikes. They can then compare call and put open interest at those levels, followed by changes in open interest and trading volume.
The next step is to consider option premiums and implied volatility. Looking at several indicators together can provide a more complete view of derivatives activity.
It is also important to remember that open interest is not a direct prediction of future price movement. Options involve leverage, and losses can be substantial depending on the strategy and market movement.
Conclusion
Call and put open interest refer to the stockiest buyers and sellers of Infosys options. Their differences are simple, but there is more to it than just comparing two numbers. Other factors that provide additional context include changes in open interest, trading volume, option premiums, strike prices, and expiry dates. Derivatives come with certain risks and terms of the contract; investors should familiarize themselves with these features prior to investing. A demat and trading platform like 5paisa can offer investors access to market data and trading tools, enabling them to analyze the option-chain data and make informed decisions.
