7.5 Open interest
Motivation
Open interest (OI) is the most quoted F&O statistic in Indian broker commentary. It is a well-defined accounting quantity with a narrow informational content. A trader should know exactly what it measures and what it cannot.
7.5.1OI accounting#
Definition
The open interest of a contract at the end of a day is the number of contracts outstanding: each represents one long and one short who have not yet closed. NSE reports OI in units of the underlying (contracts × lot size). On 5 Nov 2026 the Nov Nifty future had OI of 1,26,41,590 units, which is 1,94,486 contracts of 65.
IdentityOI accounting
Classify each trade by whether each side is opening or closing a position. Let be the number of contracts traded where both sides open, where both close, and where one opens and one closes (a position passes from one trader to another). Then
Proof
A both-open trade creates one new long and one new short: OI rises by one. A both-close trade removes one long and one short: OI falls by one. A mixed trade replaces one holder by another: OI is unchanged. Summing over trades gives the result; volume counts all three types.∎
7.5.2Price and OI labels#
The broker table Indian market commentary classifies a day by the sign of the price change and the sign of the OI change:
| OI up | OI down | |
|---|---|---|
| Price up | "Long build-up" | "Short covering" |
| Price down | "Short build-up" | "Long unwinding" |
The story behind each cell: if OI rises and the price rises, new positions were created and buyers were the more aggressive side, so "new longs" are credited. If the price rises while OI falls, positions were closed and the closers were buying, so they must have been shorts.
Why the table is weak evidence
- Every contract has both a long and a short. "Long build-up" means new longs and new shorts were created in equal numbers. The label credits the side that crossed the spread, which end-of-day data cannot observe. Passive sellers into a rising market are just as "built up".
- Expiry mechanics dominate near-month OI. In expiry week, near-month OI collapses by construction as positions are closed or rolled, and next-month OI rises. Always read OI aggregated across expiries, or the labels will mostly describe the calendar.
- Arbitrage positions are directionless. A cash-and-carry arbitrageur's short futures are matched by long stock. They inflate OI and "short build-up" without any bearish view.
- Options OI. For options, OI in contracts mixes positions with very different deltas. SEBI moved position limits for index derivatives to a delta-based "futures-equivalent" OI in 2025 for this reason (SEBI circular 29 May 2025, as reported).
- Statistics. The classification is a deterministic function of the same day's price change and OI change. Any claim that it predicts the next day's return is a hypothesis that must be tested out of sample, with costs, and with a correction for the many variants tried (M04). Without that test, the table is a description of the past, not a signal.
7.5.3March 2020 in four labels#
Worked example 7.8March 2020: all four labels in one month
From the NSE F&O bhavcopies (aggregate Nifty futures OI across all three expiries, in units; price change of the near-month settlement):
| Date | Near-month settle change (pts) | Change in total OI (units) | Label |
|---|---|---|---|
| 6 Mar 2020 | −315.45 | +23,82,900 | short build-up |
| 13 Mar 2020 | +351.10 | −8,29,275 | short covering |
| 20 Mar 2020 | +517.20 | +7,67,775 | long build-up |
| 23 Mar 2020 | −1,141.55 | −29,22,600 | long unwinding |
The Nifty fell 31.6% from 2 Mar to 23 Mar and then rose 13.5% by 26 Mar. Each label describes its day correctly in the accounting sense. None of them told a trader that the 23 Mar close would be the low of the month. The near-month OI also fell from 1.16 crore units on 23 Mar to 70.6 lakh units on 26 Mar (expiry), while the April contract's OI rose from 50.7 lakh to 1.00 crore units: the roll, not a change of view.
See it live: each F&O stock's page on OI Charts shows futures OI by expiry, e.g. https://oicharts.com/stocks/RELIANCE . Watch it across an expiry week and you will see point 2 above: near-month OI drains into the next month. For analysis, build the series yourself from the NSE F&O bhavcopy, as in Worked example 7.8.