Demystifying “Open Interest” and Securities in “Ban Period”

open interest

Fellow Traders

What is open interest?

It  refers to the total number of outstanding derivative  contracts that have not been settled.

Whenever you want to buy a Future/Option contract, there needs to be a seller. The buyer buys with the assumption that the contract price would go up and the seller sells with the assumption that the contract price would go down. When a trade happens between the buyer & the seller, there’s one ‘Open Contract‘ that comes into being and the quantity of these open contracts is referred to as ‘Open Interest‘. Thus Open Interest is the total number of outstanding contracts that are held by market participants at the end of the day. Open interest applies only to the futures/options segment. Open interest, or the total number of open contracts on a security, is often used to confirm trends and trend reversals for futures and options contracts.

A common misconception is that open interest is the same thing as volume of futures and options trades. This is not correct, as demonstrated in the following example:

open interest vs futures and options trades

Open Interest

  1. On January 1, A buys an option, which leaves an open interest and also creates trading volume of 1.
  2. On January 2, C and D create trading volume of 5 and there are also five more options left open.
  3. On January 3, A takes an offsetting position, open interest is reduced by 1 and trading volume is 1.
  4. On January 4, E simply replaces C and open interest does not change, trading volume increases by 5.

Benefits of monitoring open interest

By monitoring the changes in the open interest figures at the end of each trading day, some conclusions about the day’s activity can be drawn. Increasing open interest means that new money is flowing into that contract. The result will be that the present trend ( up, down or sideways) will continue. Declining open interest means that the market is liquidating and implies that the prevailing price trend is coming to an end. A knowledge of open interest can prove useful toward the end of major market moves. A levelling off of open interest following a sustained price advance is often an early warning of the end to an up-trending or bull market.

Securities in Ban period – the why and how?

A stock goes in Ban period in F&O when its open derivatives contracts (open interest) cross 95% of the market wide position limit (total allowable contracts). Once in ban period trade is allowed only to decrease positions, basically no new contracts/fresh positions are allowed. Any increase in open position attracts a penalty of Rs 5000 per contract. The stock comes out of ban period and trading resumes only after the market wide position limit in that script comes down to 80%.

Rollover: A Rollover is when you exit a currently held F&O contract and take a similar position in the next month contract. You do a rollover because your view on the contract you’ve held remains same but the already held contract is going to expire. When you are rolling over a Future contract, you are closing your current month position thereby reducing the Open interest and then adding the same amount of Open interest by taking a new position in the next month contract. Thereby there is no net change in the total open interest of that contract, allowing you to rollover without any concerns.

In case the security is in ban period, you need to call your best discount broker and let him know that you want to rollover the existing position and in net are not going to be adding any new positions, and the broker will take this as an exception after looking at your open position, and manually enable your account to be able to rollover that contract.be able to rollover that contract.

38 Comments

  1. Please inform that if a security is in ban period, does it indicate any future price movement? Because, the security is in ban period, it must be in demand, correct? What dies this indicate?

    Reply
    • Hi Rakesh

      You can just predict the direction but not the Price.Hope this will help you,Happy Trading

      Reply
  2. plz guide me. when security ban , it means on that that day stock will not moov upside..?

    Reply
    • Hi Dipika
      If a security is in ban it doesn’t mean it wont move up.You just cant make new positions in that particular security for that period.

      Reply
  3. For intraday positions traded (bought & sold, same day) in F&O during ban period, the penalty is levied on the broker or its on the client ?

    Reply
    • Hi Suman

      All this kind of charges are levied to the broker and the same are passed on to the client .

      Reply
  4. how to know if the scrip is in ban period

    Reply
    • Hi Subhash

      You can check the same in the Nest Trader under surveillance RMS ban symbol .

      Reply
  5. Pretty! Thiѕ was a reɑlly wonderful article. Ӎany
    thanks for supplying this infօrmation.

    Reply
  6. I have an open Position in Jain irrigation calls, But now its in Ban Period, Wil I be able to square it off? when its in Ban period?

    Reply
    • If anyone having a position in any script which is in ban period, it can be squared off.

      Reply
  7. I want to know that if security is ban then what it’s impact on share price .it’s go up or down?

    Reply
    • Increasing open interest means that new money is flowing into that contract. The result will be that the present trend ( up, down or sideways) will continue.

      Reply
  8. Where can I get the data of securities which will be banned for tomorrow (i.e. on 26.04.17) and when can I get this?

    Reply
  9. Hi,

    As I gonethrough the comments section, if intraday trade(Same day Buy & Sell), why penalty would be leve? I’m not adding any fresh position to MWPL correct? Please clarify.

    Reply
    • Hi,
      I am not sure what kind do of penalty you are talking about.
      If you are trading in Intraday (it means order number is same) then brokerage & charges would be levied as per that order number only

      Reply
  10. Hi,
    I have an open Position in Karnataka Bank calls, But now its in Ban Period, Can I hold it till the expiry as I still have two weeks for expiry or do I square off? When will the ban be lifted? Is there any specific time period for the ban? What is best for me now? please suggest

    Reply
    • Hi Priya,
      As you have open buy position of Ban scrip so you can sell before / on expiry or can hold till expiry

      Reply
  11. Hi,
    When the ban period will release mean how much time will it to take back to trade?

    Reply
    • Hi Hemachandran Shanmugam,
      if any contract comes in ban period, then same is blocked for making new position but if you have an existing position in the contract then you can square off the same or also you can do intra-day trading in it. And if you have any query, you can contact us on our helpline of chat live

      Reply
  12. if the security is in ban period then how the price movement takes place in it, as no new position can be formed? Ex: Jswenergy is ban period but its future tick is moving as it is trading normally.

    Reply
    • Hi Rahul,
      It doesn’t matter if security is in ban period, as future price is calculated with the price of underlying security

      Reply
  13. I have call option position in Ceat tyres. The same is in ban period for the last so many days. When the same ban will be lifted as there is wide price difference in trading price and call option price and premium price

    Reply
    • Hi Ashok,
      If someone has got a position in call option then he may square off his position, further, he can create a position in the same security of the same quantity which client was holding before.

      Reply
  14. I placed a buy order for BFIL contract and the broker exected it and only on the next day I was told it was on the ban list. I am now asked to square it off the position. I might loose a big sum by doing so. Could the broker force me to square off the position which in the first place he should not have executed if it was under the ban list and if I do not do so, who pays the penalty ? Again if I square off tomorrow, will I still have to pay penalty and also bear the lose if any.

    Reply
    • Hi Jitendra Jain,
      As you know we don’t allow trading of securities in ban period, but some brokers do allow trading in intraday, in this case, the broker might not have squared of his position by market closing. So exchange will charge the penalty on the broker, which will be further levied by the broker on the client.

      Reply
  15. When will be open the rcom option trade I have 10 lots in JUN contact what to do

    Reply
    • Hi,
      You can contact our RMS Team at 011-40409999 by selecting option 1.

      Reply
      • Hi, say for eg If HDIL is in fo ban script & i do not hold any position in it , now if i buy 1 lot hdil in future & sell 1 lot hdil in option , am i liable to pay penalty for this position

        Reply
  16. Suppose i buy 10lots of xyz call option today..
    tomorrow the stock comes in Ban.. whole month it is in Ban..
    In whole month can i book call option and buy in futures same qty?

    Reply
  17. Hi,
    If i have purchase contract which later on goes to ban securities can i roll out that contract in next month on expiry

    Reply
    • Hi Divyesh,
      Sure, You can roll out same QTY to next month expiry .

      Reply
  18. Hello,
    hi i have brought 10 lots call option but the stock went to ban period ?
    what are the risks having so ?
    can i sell it on ban day ? if so will it cause penalty ?
    Kindly guide me

    Reply
  19. What are the procedures for roll-over for securities which are not in Ban period?Are there any alternatives other than squaring existing position and buying fresh for next settlement?

    Reply
    • Afraid not

      Reply
  20. Sir if one script in ban..that’s script have positive or negative if i hold call or put option

    Reply

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