What open interest is
Every futures or options contract has a buyer and a seller. Open interest (OI) counts the contracts that are still open. When a new buyer and a new seller trade, OI goes up by one. When both close an existing position, it goes down by one. When one side passes their position to someone new, it stays the same. So OI measures how many positions are open, not which way they're betting.
The four OI build-ups
| Price | Open interest | Name | Common reading |
|---|---|---|---|
| Up | Up | Long build-up | New positions opened as the price rises |
| Down | Up | Short build-up | New positions opened as the price falls |
| Up | Down | Short covering | Short sellers buying back |
| Down | Down | Long unwinding | Buyers closing their positions |
Traders mostly apply this to futures. For an option, use its own premium, not the Nifty: a put whose premium falls while its OI rises is a short build-up in that put. It's a description of the day, not a prediction: a short build-up can be followed by short covering the next morning. The first tool above names the pattern from two numbers.
What max pain is
Max pain is the strike at which, if the index expired there, the options in the chain would be worth the least in total to the people who bought them. The idea behind it is that option sellers collectively gain most at that price. Some traders believe the index tends to drift towards max pain near expiry. There's no reliable evidence that it works as a forecast, and big moves ignore it, but it's a quick summary of where open interest is concentrated.
The calculation is simple. For every strike S, add up, across the whole chain, call OI × (S − call strike) for calls in the money and put OI × (put strike − S) for puts in the money. The strike with the smallest total is max pain.
| Strike | Call OI | Put OI | Total value if Nifty expires here |
|---|---|---|---|
| 24,700 | 12 | 78 | 1,04,200 |
| 24,800 | 18 | 92 | 65,800 |
| 24,900 | 31 | 110 | 38,400 |
| 25,000 | 95 | 104 | 25,100 (lowest) |
| 25,100 | 120 | 47 | 31,700 |
| 25,200 | 136 | 28 | 55,000 |
| 25,300 | 88 | 15 | 94,700 |
In this example max pain is 25,000, with 25,100 next. The strike with the most call OI is 25,200, which many traders read as resistance, and the strike with the most put OI is 24,900, often read as support. Those readings come from option writers defending their strikes; they can change within hours.
How to use the tools
- OI build-up: enter the day's price change and OI change for the future or option you're looking at.
- Max pain: copy the strike, call OI and put OI columns from your option chain for one expiry, one strike per line, and paste them into the box. More strikes give a better answer.
- Check the PCR too: the PCR calculator gives the put call ratio for the same chain.
Limits of OI analysis
- OI doesn't show who's long. Each contract has both sides; the readings above are conventions.
- Hedges look like bets. A fund buying puts against a stock portfolio adds put OI without expecting a fall.
- Expiry resets everything. Nifty weekly options expire on Tuesdays (or the trading day before, if Tuesday is a holiday), and the nearest expiry's OI builds up and vanishes every week.
For trades built on these ideas, see Nifty option selling and the iron condor, and check any position in the payoff calculator. This page explains tools with invented numbers; it doesn't comment on any day's market or suggest a trade.