If you’re trading options and still have no knowledge of Sensex data, you’re in the right place. I understand there is a maze of numbers when you look at those option chains for the first time. They are a goldmine of information to be used towards your trading decisions once you know what to look for. Keep on reading to understand how to decode this data like a seasoned trader.
Firstly, you need to look into Open Interest (OI) and volume. OI is the number of active contracts out there, and the volume shows today’s activity. When you find high OI at some specific strike prices, that should be where big players place their bets and create support or resistance levels.
And here is a time-saving tip, if you want to start, go for At-the-Money (ATM) options, which are pretty close to the current Sensex price. Then branch out to check In-the-Money (ITM) and Out-of-the-Money (OTM) options. In this manner, you’re not wasting time looking over the entire chain.
If you are not interested in finding out if other traders are bullish or bearish, you need to use the Put-Call Ratio (PCR). The formula is very simple, just divide put option OI by call option OI. For example, if you are looking at 8,000 call OI and 15,000 put OI, your PCR is 1.875. It’s telling you that traders are leaning bearish because it is above 1.
The premium prices are also a signifier of a lot of things. Bulls are in control when call premiums are going up but the rise of put premiums shows that the bears are taking charge. Pay attention to Implied Volatility (IV) – more IV indicates higher price volatility expectations by traders.
For a better understanding of the concept, check the following scenario: If you see 20,000 contracts of call OI at a 68,000 strike price, that would be a ceiling the market needs to break through. At the same time, an OI of 15,000 stands at 67,500 as a floor. Traders are betting on movement down if IV is 20% for puts at 67,500 and only 16% for calls at 68,500.
When the Sensex moves, Delta tells you how much your option might move. Theta tells you how much it will move for each unit movement in time and Vega tells you how much your option will move for a unit volatility. Track the trading range between the major support and resistance levels. OI and Volume will often flip on their head big at these points – that’s what’s bullish or bearish prior to a future breakout or breakdown.
As a trader, you should not look at just one strike price or expiry date. The big picture matters! Rising OI with rising prices? That trend’s got legs. Is OI dropping off? Still, the trend might be running out of steam. Keep in mind, that neither one of these insights is guessed upon because they come straight from the real Sensex option chain data. The good thing is that they are tools that you can use immediately to make better trading decisions.