The Open Interest report is designed to show the aggregated position of the market participants on each stock. This report can be used to highlight their positions, trends, outliers, and possible opportunities.
What is an 'Open Interest Report'
The Open Interest report is sometimes called the 'max pain' report or Open interest graph/map. The report shows the Open Interest distribution across different strikes that expire in the next monthly expiration (including all expirations until then). The goal is to show the aggregated position of all market positions.
The theory behind the report is that since options expire on specific dates, the market participants will be interested in keeping the stock's final price close to their position. As a result, we often see the convergence of the OI 'center' and the stock price. Additionally, since many market participants hedge their position, there will be buying or selling pressure on the stock toward the point where losses are minimized.
We can use this report to see how the options players trade this stock. Mainly in 3 ways:
- We can see the center of mass according to the OI and understand that there will be buying and selling pressure towards that point.
- We can check the trend: This shows how the OI center of mass changes over the last five trading days.
- During the expiration day, if the stock is close to a strike with high OI, we can expect the pressure on the stock price towards that strike price (often referred to as 'pin risk').
How to use the report:
The report has two sections. The first sections highlight the most extreme divergence between the OI 'center' and the current stock price: 3 bullish and 3 bearish signals. The second part includes liquid stocks sorted alphabetically so you can find the information on stocks on your watchlist.
We can analyze this report in four ways:
- Center of mass: When comparing the current stock price to the 'center of mass,' it is essential to understand why this divergence exists. If it is a fundamental reason, we can expect the center of mass to 'move' towards the stock price and not vise-verse. However, if the divergence is technical or we don't see a reason, we can expect pressure for the stock to move toward the center of mass.
- Center of mass trend: We can check the direction of the center of mass. If it is too extreme, we can have a contrarian trade and bet on reversing the mean. However, it is good to know the trend of the CoM when building a position, as this represents the general trend of the market participants.
- Options volume + Volume power: This information is available on our scanner, but high volume usually reinforces the stock trend. So if we see a significant move and high volume, we can expect it to continue.
- Pin risk: This is relevant during expiration. Since options expire on specific days - there are high incentives to keep the stock price at precise strikes until expiration. So we must keep it in mind during expiration if the price is already near a strike price with large OI.
When analyzing this report, it is essential to remember that this information is noisy. In addition, the report is a point in time, but you need to check the previous reports and other information before trading. So it's best to confirm the signals and use this report with your trading process.
Delivery of the report:
This report is sent to your email automatically. To control the email frequency, use: Settings -> Reports tab.
- Weekly - The report Will be sent over the weekend, after Friday's close and the EOD calculations.
- End of Day - The report will be sent after the EOD calculation every day. It will arrive before the next day's session.
(Open Interests are updated only after the close by the exchanges)
Click here to download a sample report.
How to read the report:
Center of Mass: This is where the options center of mass according to the OI. If the center is above the current stock price, we can expect buying pressure from the options market, and vice versa: IF the center is below the current market price, then we can expect selling pressure from the options market.
Options Volume + Power: This column calculates the total option volume across the entire chain. The volume power value below it compares the stock volume to the average volume. These values help us understand how heavy the volume is on that ticker.
Total OI: The total calls & puts traded across the entire chain and expiration.
CoM Trend: The trend of the Center of Mass over the last five trading days. If the CoM went higher, it would be green and red if it went lower than the previous day's value.
OI by Stike: Histogram chart where the X-axis is the strikes, The orange bars are the options open interest, the black line is the stock price, and the dashed line is the CoM.
- Trial users can get any report for the two-week free trial (no credit card is needed).
- Beginner, Advance plans - Annual users can use the EOD reports.
- Legacy plan (premium users from before Nov 2021) - Can use End of Day reports.
- Monthly plans - Please upgrade your plan to access this feature.