Section 6 · Misreadings
Six common misreadings
Each of these turns a column's count into a forecast. Here is what the column actually holds.
Sample Indexspot 4,865.00previous close 4,851.00expiry in 14 dayslot 45 unitsall figures invented
| Calls | Puts | |||||
|---|---|---|---|---|---|---|
| OI | LTP | Strike | LTP | OI | ||
| call in the money | 22,550 | 173.05 | 4,700 | 8.05 | 40,600 | |
| call in the money | 39,950 | 130.10 | 4,750 | 15.10 | 71,900 | |
| call in the money | 27,200 | 91.70 | 4,800 | 26.70 | 49,000 | |
| call in the money | 30,400 | 59.55 | 4,850 | 44.55 | 54,700 | |
| 52,300 | 34.80 | 4,900 | 69.80 | 29,050 | put in the money | |
| 47,050 | 17.85 | 4,950 | 102.85 | 26,150 | put in the money | |
| 69,300 | 7.75 | 5,000 | 142.75 | 38,500 | put in the money | |
| 39,250 | 2.75 | 5,050 | 187.75 | 21,800 | put in the money | |
Excerpt: open interest and last traded price.
On a narrow screen this table scrolls sideways; the strike column is in the middle.
“The biggest open interest is a wall the index won't cross.”
Open interest counts open contracts at a strike, 69,300 calls at 5,000 in the specimen. Each has a holder and a writer; the column does not say which side anyone is on, why they are there, or what they will do.
“The put-call ratio tells you the direction.”
The ratio is total put open interest divided by total call open interest: 3,31,700 ÷ 3,28,000 = 1.01 in the specimen. It is a ratio of two counts. Neither count records which side of each contract expects what, so the ratio cannot carry a direction on its own.
“High IV means the option is overpriced.”
IV is the premium re-expressed as volatility. Saying it is too high is a judgement about the future, not something the column measures.
“Rising open interest with a rising price confirms the move.”
The chain records that positions were opened, not the intentions behind them. A rule of thumb about what the combination means is an interpretation, not a reading.
“LTP is the price I will get.”
LTP is the last trade. An order that trades straight away buys at the ask or sells at the bid: for the 4,850 call, 59.65 or 59.40, against an LTP of 59.55.
“A cheap far-out option is a small risk.”
For a buyer, the whole premium is at risk: the 5,050 call at 2.75 is worth nothing at expiry unless the index ends above 5,050. For a writer, the risk runs the other way and is not limited to the premium received.