Why do i see this significant dip in OI on the first tick

Question

Why do we see a huge(relatively) dip in OI on the first tick when the market opens ?

Does this happens because people closing out their previous position the moment market opens ? Or there is something else I am missing like this being a data issue ? !

This dip in open interest at market open is seen in almost all the futures I have seen in my country.

This derivative is of NIFTY which is the primary index of Indian equity market.

We follow European options which can be exercised only on the expiry date. Also this data is from the first week of the month the contract will expire about 18 from now , so rollovers should not be the reason.

I was reading the following doc from the exchange this security trades on https://www1.nseindia.com/products/content/derivatives/equities/settlement_mechanism.htm it says people can opt for daily MTM settlements but not sure if it has anything to do with the OI We see on chart.

Answer 1

This isn't going to answer your question directly because I don't trade futures nor did you provide what country you are in.

In the U.S., with options, exercise notices are submitted until 5:30 PM EST. In the evening, the Options Clearing Corporation utilizes a 'wheel' that randomly determines brokerage assignments and those with short contracts are then notified of assignment. Such assignments change the Open Interest.

My point is that Open Interest data lags the market by one day. Perhaps it is the same for the securities that you are following.

As for the dip that you are seeing, I would guess that's merely a function of either looking at a finite sample of data or maybe the time period you're looking at is near expiration when traders are either closing their positions or rolling them to a later expiration date.