A 17% surge on the NSE: VEDL — Wow! Being part of such a move would have been truly exciting. How can NSE option traders capitalize on such opportunities or seize upon such delightful moments?
Before delving into the complexities of OI-PCR and its modified form, it’s essential to understand the concept of open interest. Open interest represents the total number of outstanding options contracts for a specific security. This metric holds great significance in options trading, serving as a vital tool for traders to assess market sentiment and predict potential price changes.
OI-PCR, or Open Interest Put-Call Ratio, is a powerful indicator used by NSE options traders. It is calculated by dividing the open interest of put options by the open interest of call options.
OI PCR compares the open interest of puts and calls, essentially providing a comparative measure.
OI PCR = Open Interest of Put Options / Open Interest of Call Options.
When viewed from the perspective of option sellers, an increasing OI PCR suggests more Puts are being sold than Calls, indicating a bullish move. Conversely, a decreasing OI PCR suggests more Calls are being sold than Puts, signaling a bearish move.
However, here’s the twist: the modified OI-PCR, a premium-weighted version, offers a more effective and nuanced approach to options trading, helping to identify directional cues for the short term.
Introducing Modified OI-PCR
OIPCR Modified = Open Interest of Put Options / Open Interest of Call Options (But Premium Weighted)
Capable of Identifying Short-term Moves
Modified-OIPCR emphasizes more on Options OI Closer to Current Price,
Tracking Immediate Expectations of Traders better
Holds a Fantastic Negative Relationship with Underlying
Chart below shows the Negative Relationship
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Quantsapp Signature Arrow Indicators showing Indictor’s Turning Points
The interesting part is that just like OI PCR, Modified OI PCR also has historically been observed to follow a mean reverting pattern.
In the below example, we can clearly see that a signal was generated on 27th March inside the tool indicating an upward bias. The outcome was a huge move of 17% within 6 days.
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