OI Analysis

How to Track Traders' Opening and Closing Positions through IO Changes

We will explain how to track traders' actions through open interest (OI) and make profits using a options trading scenario with $MRVL

On 22nd March 2024, there was an unusual trading volume for $MRVL call options with a strike price of $70 and an expiration date of 17th May, exceeding 2500 contracts shortly after the market opened. Throughout the remaining trading hours, there continued to be scattered trades related to this call option.

Could these trades be "opening positions"?

Since most of the contract volumes involved in the above trades are smaller than the previous day's open interest (2241), determining whether they are "opening positions" requires more data.

The open interest (oi) data obtained on the next trading day, 25th March, showed that 9577 contracts from 22nd March were carried over to open interest. Considering the order sizes during trading hours on 22nd March, it is highly likely that these trades were all new openings.

From the Avg price column in the chart above, on 22nd March, the average transaction price for the relevant trades was $3.29, and the contract average price dropped on the next trading day. Judging from the open interest (oi) changes, traders did not close their positions but endured the decline and continued to hold the contracts.

On 26th March, $MRVL's stock price rebounded by over 3%, and the aforementioned contract trades began to profit after offsetting the decline. It is also noteworthy that the call options saw an almost doubled increase in oi, indicating that the traders may have added to their positions.

On the TradingFlow platform, we can access the intraday data for 26th March (see the chart below). Half an hour after the market opened that day, a large number of orders flooded in, and the total volume continued to rise throughout the rest of the day. Judging from the addition of 10839 oi data on that day, it can be determined that the related trading orders were also new openings.

On the next trading day (27th March), the average contract price reached $6.01, indicating that traders who continued to hold the contracts likely obtained substantial returns.

On 28th March, the oi decreased by 4026 contracts. At the same time, intraday data showed that 4349 call option contracts were traded with a bearish sentiment, indicating that the traders mentioned earlier may have closed a portion of their positions. As of 5th April, the oi continued to remain at 17000+. It appears that the traders still hold a majority of the contracts, and compared to their initial entry prices, they have likely made substantial profits!

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