Decoding the Option Chain
If the chart is the body of the market, the Option Chain is its DNA. It tells you where the big institutions (FIIs and DIIs) are putting their money. By tracking Open Interest (OI) and the Change in OI, you can predict market reversals before they happen.
Key Terms You Must Know
- Open Interest (OI): The total number of open contracts. High OI at a strike price acts as a magnet or a barrier.
- Volume: The number of contracts traded during the day. High volume with increasing OI signifies a strong trend.
- PCR (Put-Call Ratio): A PCR above 1.0 is generally bullish, while below 0.7 is bearish. However, extreme values (like 1.5) often signal a reversal.
Identifying Support and Resistance
The strike price with the highest Call OI acts as the resistance. The strike price with the highest Put OI acts as the support. When you see "Short Covering" (OI decreasing while price increases), expect a massive rally.