OI vs volumes
Open interest is a metric that captures the total open position in a strike as of a trading day. Volumes represent the total contracts traded during the day whereas OI is a cumulative number that starts from the day a strike commences trading. Suppose total volumes in a strike on a trading day is 10,000 contracts. If all these contracts, long and short, are closed by the end of the day, then there will be no change to the OI carried forward from the previous day. If say 2,000 of total 10,000 contracts are not closed during the day, then 2,000 contracts will be added to the OI carried forward from the previous day.
When you go long on a call option, your objective is to sell the position later and take profits. As the underlying moves up, the call option that you bought can become in-the-money (ITM). ITM options carry intrinsic value, which increases its absolute price. So, ITM options are less preferred, the more the intrinsic value they carry. This means you should sell the option before it becomes deep ITM, say, four strikes below the Nifty Index’s current spot price. Note that you trade European options, which means you cannot exercise the options become expiry. This makes it important that the strike you hold is liquid when you want to close your long call position. The issue is that volumes on the day you buy the call cannot help you determine if the strike will be liquid when you eventually sell the position. Why?
Suppose you buy the 22500 strike when the Nifty Index is at 22476. The volumes will be high because it is an at-the-money (ATM) strike, as it is closest to the spot price (technically correct way to identify an ATM strike is to choose the one with a delta closest to 0.50). If the Nifty Index were to move up the next day to, say, 22650, trading interest is likely to shift to the 22700 strike. The 22500 that you bought will now be 150 points ITM, attracting less trader interest. So, high volumes the previous day on a strike does not mean high volumes the next day too.
Optional Reading
Traders who take short position should come back to the market to close their position. If more short positions are carried forward on a trading day, greater the chances that you will be able to find a counterparty to close your long position with less mispricing. The change in OI captures the number of contracts that have taken an opposite position to the one you want to initiate, making it an important metric to understand options’ liquidity.
(The author offers training programmes for individuals to manage their personal investments)
Published on April 4, 2026