Saturday, 9 June 2018

Studying SBI stock chart along with open interest of FNO

Of late, I have been trying to study open interest of futures and options data and combine it with price action to see whether it helps in trading better.  Today I am making such attempt with SBI stock, trying to find what is the likelihood of breakout.  I am still very new in studying and interpreting OI data and making this post only for learning purpose.

Let's first have a look at its 30-min chart and try to understand its current state. I am a very short-term trader, so 30-min is a good higher time frame period for price action analysis.


As you can see in the chart, after responding positively to its quarterly results, it is stuck in the narrow range of 260-275 and has spent two and a half weeks in this narrow range.  It is now currently at upper range extreme and may be poised for a breakout. Whether it will breakout successfully or not, only God knows, but let's make efforts to analyze what FNO data indicate and whether we can get any clue from there.

Have a look at futures open interest first.

It appears very clear from futures OI data that since start of June expiry open interest has risen along with price increase indicating long build-up.

Now option chain:


As per option chain, max OI is at 260PE and 300CE.  On closer look, almost similar OI is at 270CE which is in the money now as the underlying price is at 273.  Overall PCR is 1.05.  On last Friday, huge OI got added in put side from 260 till 245.  On the other hand, call OI witnessed unwinding at 280CE and almost no change in 275CE & 270CE.  So as per option chain, it is clear that lower range extreme (260) has highest put OI indicating put writers accepting this range extreme as a boundary.  Upper range extreme is 275 but the highest call OI is at 270 and all those call writers are now in pain as the current underlying price is above 270.

  • Future OI suggests long buildup.
  • Call OI suggests max open interest strike 270CE in pain, no further shorting and unwinding at 280CE.
  • Put OI suggests 260 level as boundary and more shorting below 260 level.
  • PCR of 1.05 suggests slight bullishness.

So, although the stock price is stuck in the narrow range of 260-275, FNO data suggests market participants are building long positions in futures, shorting puts and max OI call strike in pain with no further shorting of call strike closer to upper range extreme.  In other words, a bullish bias.  With this bullish bias and prices very close to upper range extreme, we can safely assume it is likely to break out on up side.  If it really breaks out and sustains, as a trader we can try to join the winning party and benefit from it.

Let's wait and see how this turns out to be next week and prove this analysis correct.

If I am missing something here in studying OI or going in wrong direction, please feel free to correct me by writing a comment in the comment section below.

3 comments:

  1. Can you post a follow up on this ..

    ReplyDelete
    Replies
    1. Here is the tweet I had made for followup,
      https://twitter.com/charttechnical/status/1006117145296556033

      Delete
  2. Very good analysis. Something which I have ignored untill now. Thank you for sharing this article.

    ReplyDelete