IV & OI Basics
Implied volatility (IV) and open interest (OI) are two of the most useful numbers in the option chain. Together, they tell you what the market expects and where traders are positioned.
Implied Volatility (IV)
IV is the market’s forecast of how much the underlying (NIFTY) might move, expressed as an annualized percentage. Higher IV → higher option premiums; lower IV → cheaper options.
If NIFTY 23450 CE has IV = 18%, the market is pricing in roughly 18% annualized volatility.
For shorter periods, you can roughly scale: daily move ≈ 18% / √252.
For shorter periods, you can roughly scale: daily move ≈ 18% / √252.
Open Interest (OI)
OI is the total number of outstanding (open) contracts for a particular strike and expiry. It shows where traders have built positions.
- High CE OI at a strike → often acts as resistance (writers expect NIFTY to stay below).
- High PE OI at a strike → often acts as support (writers expect NIFTY to stay above).
Reading the option chain
In the Option Chain tool, you can see:
- IV by strike – to spot skew (e.g., OTM puts with much higher IV = fear of downside).
- OI by strike – to identify major support/resistance levels.
- PCR (total PE OI / total CE OI) – as a rough sentiment gauge.
Putting it together
- High IV + high OI at a strike → strong conviction by option writers, but expensive premiums.
- Rising OI with rising price → long buildup (bullish).
- Rising OI with falling price → short buildup (bearish).
Practice reading these in the Option Chain and then see how they affect strategy payoffs in the Playbook.