Open interest

Volume counts trades. Open interest counts positions.

If you and I trade a contract back and forth all morning, volume climbs and open interest does not move at all — no new position was created. If instead a fresh buyer meets a fresh seller, one new contract exists that did not exist before, and open interest rises by one.

Because every long is matched by a short, only one side is counted. The level of open interest is the market's read on depth: how much money is actually committed, as opposed to how much has merely changed hands.

Four things can happen when two people trade, and only two of them change open interest:

Read alongside price, open interest becomes a directional signal. The workbook gives four cases:

1. Price rising and OI rising — fresh longs, bullish.
2. Price rising but OI falling — short covering, existing shorts squaring up.
3. Price falling and OI rising — fresh shorts building, bearish.
4. Price falling and OI falling — existing longs squaring up.

Since the SEBI circular of 29 May 2025, open interest in equity derivatives is measured at portfolio level as Future Equivalent Open Interest (FutEq OI) — net delta-adjusted positions across futures and options for an underlying, rather than notional contract counts. Long futures carry a delta of +1, short futures −1, and options a delta between 0 and ±1.

Open interest = number of contracts outstanding (one side only)

FutEq OI      = Σ (position × delta of that position), netted per underlying

Put-call ratio = Put open interest ÷ Call open interest

Follow four days in a single contract:

March 3 is the whole idea. Fifty contracts changed hands, so volume was 50, but no new position came into being — one short simply moved from A to E. Open interest did not budge.

Now the money. A Nifty May futures contract with open interest of 2,56,000 contracts, a lot size of 25 and the index near 25,000 represents:

2,56,000 × 25 × 25,000 = Rs 16,000 crore of notional exposure outstanding

And the delta adjustment matters. The workbook's FutEq illustration nets four clients whose notional OI is 2,800 contracts down to a FutEq OI of 900 — Client 2's 500 long calls at a delta of 0.5 count as 250, and Client 4's offsetting put and call positions net to zero. The same book, measured honestly, is under a third of the headline number.

Chapter 15 introduces open interest immediately after MTM, with the March 1-4 table above. Chapter 16 repeats it for options, and Chapter 17.5 uses it for trading strategy — the four price-versus-OI scenarios and the put-call ratio — plus the new FutEq OI formulation under the SEBI circular of 29 May 2025. Chapter 21.11 covers it again for interest rate options. Expect the volume-versus-OI distinction, one of the four scenarios asked as "which indicates a bullish trend", and a FutEq calculation.

• Open interest is not volume. Volume resets to zero each day; open interest is a running stock of live positions.
• Only one side is counted. An OI of 150 means 150 longs and 150 shorts, not 75 of each and not 300 in total.
• Rising OI is not automatically bullish. It only says fresh positions are being created; the price direction tells you which side is creating them. Rising price with rising OI is bullish; falling price with rising OI is bearish.
• Falling price with falling OI is long liquidation, not fresh selling. Candidates routinely mark this bearish.
• FutEq OI is delta-adjusted; notional OI is not. After the 2025 circular the delta-adjusted figure is the one that counts, and it is always the smaller number for an options-heavy book.
• The put-call ratio is a contrarian indicator: a PCR below 1 signals bearish, above 1 bullish — the opposite of the intuitive reading.