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this is the image of nifty option chain.

this is the image of nifty option chain.

I am new to options trading and I learnt that open interest change can occur only upon a transaction. But here, the change in open interest is less than volume traded during a day. Am I understanding something wrong ?

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Here is what I understand. The OI is the number of contracts sold & bought, change in OI would mean the number of contracts that are either coming new or vanishing from the availability.

So if we say that if for a day change in OI is positive, newer contracts are in action, let's remember contracts start with some one selling and subsequently some one buying it. And that forms a trade or change in OI. If we would have had a good raise in the price of the scrip for that day and there is a good rise in OI for CE options (for a specific strike price) mean there is good build up for the market to go higher than today, vice versa is true for PE options. But beware the converse of increase in price and decrease in OI or vice versa is a reversal sign.

What I am not very sure is about the volume impact on the OI change

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Open interest is basically the number of Open contracts.. there can be three things happening when you create a SELL contract..

  1. You write a new contract
  2. You contract you had already bought (assuming somebody had already written the contract, and its just a transfer)
  3. You try to square off some BUY contract you had already written

(same things with BUY contract)

So, when you write a new contract, the OI obviously increases. When you just sell the contract you had already bought, no change happens but when you try to square off your positionm, definitely a change happens and that is negative OI.

Have a look at here https://www.investopedia.com/terms/o/openinterest.asp

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