ITM-OTM OI imbalance long
This positional strategy reads the NIFTY option chain to decide whether to hold a long futures position. Every afternoon it compares call and put open interest around the at-the-money strike across the next four expiries, weighting the nearest most. If writers are leaning bullish, it goes long; if they lean bearish and option premiums are cheap, it goes flat. It never shorts.How it trades
Results
PRE-BUILT · DEFAULTSWhere it made and lost money
With 21 trades the buckets are small, but the pattern is plain. Five trades where NIFTY rose more than 1% while held made ₹1,47,175; five where it fell more than 1% lost ₹2,29,247, with no winners, because the exit waits for a bearish OI reading plus cheap premiums, which rarely come during a fall. Eleven trades where NIFTY stayed within 1% lost ₹60,831. Entries the day after a gap-up open were the weakest group, losing ₹1,27,897 over 8 trades. Figures are before costs.
About this strategy
- At 15:20 each day, for each of the next four NIFTY expiries (skipping one that expires that day), take five strikes on each side of the ATM strike.
- Compute an in-the-money difference (call OI below ATM minus put OI above ATM) and an out-of-the-money difference (call OI above ATM minus put OI below ATM); the score is the first minus the second.
- Weight the expiries 4, 3, 2, 1 from nearest to furthest and divide by the total OI in those rows, giving a score between -1 and +1.
- If the score is above +0.10, buy one lot of NIFTY futures at 09:16 the next session and hold.
- If the score falls below -0.10 and the weighted ATM call and put premiums are each below 0.8% of the future, sell at 09:16 the next session.
- On the monthly futures expiry day, close at 15:15 and re-buy the next session if the signal is still long. No stop, no target.
Why traders use it
Option writers are often seen as the better-informed side, and where they build open interest is read as where they expect the market not to go. Measuring the imbalance across several expiries, rather than just the nearest, aims to capture positioning that is more than one week's noise. Normalising by total OI turns raw contract counts into a share that works across time. It is an attempt to follow the option market's collective lean.
The year in plain words
With default settings on NIFTY from 1 Oct 2025 to 30 Sep 2026, the strategy took 21 trades and won 7. It lost ₹1,42,903 before costs and ₹1,51,169 after ₹20 per order and bid-ask slippage. The trouble is that long positions are held with no stop until the OI score turns bearish, and in March one trade lost ₹1,26,665 before the exit signal came. December and September each lost about ₹50,000, while October (₹49,634) and April (₹69,264) were the bright spots. The maximum drawdown before costs reached ₹2,07,950.
What the settings do
Risks
- There is no stop loss; a single trade lost ₹1,26,665 before the exit condition was met.
- The exit requires cheap ATM premiums, which tend to be expensive exactly when markets fall, delaying exits.
- Open-interest readings can reflect hedging rather than directional views, so the signal may be misread.
- A full NIFTY futures lot is held overnight for days or weeks at a time.
Who it suits
Traders interested in option-chain analytics who want to test whether open-interest positioning predicts NIFTY's direction, and who have capital for very large swings on a single futures lot.
Questions traders ask
What does OI imbalance mean in options?
It compares open interest on calls and puts at certain strikes. Here, heavy put writing below the price and call positions that favour upside count as bullish. The score measures how lopsided that positioning is around the at-the-money strike.
Is the OI imbalance strategy profitable?
Not in this test. From 1 Oct 2025 to 30 Sep 2026 on NIFTY it lost ₹1,42,903 before costs and ₹1,51,169 after ₹20 per order and bid-ask slippage, over 21 trades. Past results do not guarantee future ones.
Why weight four expiries?
The nearest expiry reflects short-term trading, while later expiries carry longer-term positions. Weighting them 4, 3, 2, 1 gives the nearest the most say but still lets later expiries influence the reading.
Why doesn't it go short when the score is bearish?
The rule set is long-or-flat. A bearish reading, combined with cheap premiums, only closes the long. The strategy never sells NIFTY futures to open a short.