Institutional Activity

Participant-OI data How to use it practically?

In our previous post we have discussed on how would you read the report on Participant-OI data that is released by the exchange.

In this post we would like to give you an idea on if the data from this report can be directly applied to your day trading.

To start with, let’s ask this question Does this data really tell me when to enter or exit my trades?

The answer to this question is obviously NO, the reason being the data is a past data and not a real-time one so it can’t be used or applied directly to your trading entries and exits.

Now the next question that comes to your mind out of common sense is that should i be really seeing or using this data if it doesn’t really help in timing my entries and exits?

The answer to this question is YES in our opinion because this particular data can help you understand the current context of the market or it will at least tell you what institutions have been doing on a particular day and what positions they have carried for the next day.Also if you are a follower of option chain and use it in your trading you might have noticed by now that sometimes it doesn’t work the actual reason for this you are not interpreting the data in the correct way and this data from this report can help you interpret the option chain well.

Now coming to the data that’s present in this report, Though the data point on what they have done the previous day doesn’t really matter because it’s a done day, the open positions that they(institutions) have carried will have an impact on the market sentiment and that’s what you should be having at the back of your mind as an additional info so that when you see the option chain the next day you can pretty much appreciate all the OI activity happening there in correlation to the open positions carried by the Institutions.

So to combine it for you and to put it in a nutshell, “Seeing and understanding this data from this report puts you in a better position when you actually are trying to interpret the option chain the next day because you already know the positions of different participants that have been carried from the previous day”.

Hope now it makes more sense on how to utilize this report for improving your trading.

With that said, what we discussed above might look like a complete theory but here’s an example which can help you appreciate what we were talking about in the above paras.

Let’s take a scenario where the institutions have carried some PUT LONGS as can be seen from a report on a particular day which normally makes a case for a negative market or market with limited upside the next day.

But imagine you weren’t aware of this information from this report and have been just following the traditional way of interpreting the option chain which says OI addition in puts is a bullish indication for the market but what actually happens is that market will fall and you tend to blame the data, when the actual scenario is that institutions are holding long puts and you being not aware of it.

Take the same case and at the next day’s open if suppose the market is trading flat and there is OI decrease in the puts, normally a decrease in puts OI is not good for the market because it indicates writers are covering in fear of further fall, but in this case where institutions were holding PUT longs from previous day this decrease can be attributed to exiting of PUT longs by institutions and you can appreciate this information on the option chain well if you were tracking this report and already know their positions carried for the next day.

We hope now you have more clarity on how this report can be used to your advantage and improve your trading.

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