Open Interest is an important indicator that can help one in ascertaining the flow of funds.

  1. If the open interest rises with rise in price it is a bullish indication.
  2. If open interest rises and prices fall it is a bearish indication.
  3. If open interest falls and prices rise it is a sign of short covering by bears.
  4. If open interest falls and prices also fall it is a sign of profit booking by bulls or liquidation of positions.

Put Call Ratio is an important indicator that can help one in gauging the future direction of the market.

  1. If the Put call ratio rises then there is hope of higher prices in the near future.
  2. If the Put call ratio falls it is a sign of weakness in the market.
  3. Generally put call ratio is read along with volatility.
  4. PCR can be calculated for Open Interest/positions or no of puts and calls traded.
  5. Historically – 1.06 -2.00 is bullish. Above 2 and below 1.06 one may expect a sharp fall.

There are two types of Volatility – historic volatility and implied volatility. Historic volatility is based on historic prices of the futures and implied volatility is based on the volatility calculated from options i.e. volatility implied by premiums in options.

  1. If volatility rises and PCR falls, it has bearish implications.
  2. If volatility falls and PCR rises, it has bullish implications.

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