How F&O Data Hint At Nifty Levels?

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In the month of July this year, the stock markets had ended at an all time high and the traders and investors were expecting a 10,000 level as per the share market news.

Open Interest or OI is something that talks about at what level the traders take the positions keeping their fingers crossed on whether the Nifty is going up or going down. These levels are referred to as “strikes”. These come at the intervals of 50 points of Nifty for example 9,900, 9,850, 9,800, 9,950, 10,000 and so on.

Now talking about how one can build the position at these levels, one can buy monthly call or put options on Nifty. One can buy call options if you are expecting the market to rise in the near future and one can sell the put options if one is confident that the market is not going to fall. In the same way, one can buy put option if you are bearish and similarly one can sell the call option if one expects the Nifty not to rise any further.

Options are the instruments that enables the holder to buy or sell the underlying asset at a fixed price. An option can be ‘call’ or ‘put’. In call option, the buyer buys the asset at strike price and can demand sale of the asset from the seller and the seller has to comply. In a ‘put’ option, the buyer can sell the asset at the strike price to the buyer and yet again, the buyer can sell and the seller has to buy. The price paid for an option is called the premium.

Now in order to purchase and sale the options, if you wish to buy a call option or a put option, the buyer will have to pay a premium amount. This premium amount is nothing but the price of an option at a particular interval or “strike”. To cite an example to make you understand better, let us take into consideration the July options, which expires on Thursday. 10,000 strike call was around Rs. 15 a share where 75 shares make one lot where the 9,800 put costs around Rs 13. Now in order to make profit, the Nifty must breach 10,015 before it expires or goes below 9,787 before or at expiry time. The seller of the option will receive the premium that you pay. In case the option expires out of money or at the money, the buyer forfeits either the entire premium or a major chunk of the premium amount. If it is in the money, the seller of the option will give the required money to the buyer.

Talking about the maximum OI or open interest, it is at 10,000 -67.84 lakh shares for calls and the maximum OI or open interest is at 9,800 -64.63 lakh shares for puts. This also means that the resistance of Nifty option chain this series is at 10,000 and support is at 9,800.

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