Open Interest

One of the terms that you might have already observed while looking up options, or should know before we proceed is open interest. Open interest is the indicator of the total number of open contracts in existence in the market at a time. Open interest is sometimes simply referred to as OI.
No suppose the case of Ravi and Rajesh again, and also assume that Ravi has sold a call option of NIFTY of the strike price of 8200. Here, clearly, Ravi is short by one lot and Rajesh is long by one lot. But the underlying contract is the same, and the different positions of Ravi and Rajesh are like the different sides of the same coin. Here, the open interest is the number of contracts in existence.
You might confuse this with volumes, but OI and volumes are not the same thing. First of all, volume is measured for the day, and begins at zero at the start of the day and increases during the day, while OI is measured at a point, and may increase or decrease during the day.
To illustrate this point, imagine that Rajesh further sells the option to his friend Rohan, that is, he squares-off his position. Here, the OI is still one, as the number of open contracts is the same as before, but the volume has increased by 100%. While the contract was only traded once (between Ravi and Rakesh) earlier, it has now changed hands once more (in the movement from Rakesh to Rohan).
Here, we must make the distinction very clear in our minds, as when we analyze the market, we must judge the two with different perspectives. We shall also study the analysis of the underlying with the help of volumes, probably in the next discussion.

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