Understanding Open Interest: What is it? Essential for those who want to trade gold like big players

Most traders who like to trade gold (XAUUSD) usually focus on price charts, support and resistance levels, and various indicators. However, one thing that professional traders, fund-level traders, and institutional traders are interested in is Open Interest (OI; oi) and the structure of Calls, Puts, Vol settle, as well as Implied Volatility… This article may not cover everything mentioned, but we’ll introduce you to OI starting from scratch. At the end of the article, we’ll also be giving away a Dashboard EA for you to try (given away at the end of the article)

What is Open Interest?

OI or Open Interest is the number of trading contracts that are “still open” in the Futures and Options markets… Simply put, it’s the number that tells us how many investors have not yet closed their positions in the market. If we want to truly understand how to use OI data, we should first understand what people in the Options market are thinking

Typically, CFDs (Contract for Differences) traders think about whether the price chart will go up or down to plan their Buy/Sell trades, right? On the other hand, people in the Options market often think about where the price should reach, whether the market should be stable or volatile, how many days are left, whether the Premium will flow in or out, etc.

The next thing we need to know before we start reading the data is Call and Put… Some of you might understand that having a lot of Call options equals an upward trend, or if there are many Put options, it equals a downward trend. In reality, it might not be like that.

Call options are not just for people hoping the price will go up, but there are also people buying Calls for speculation and people selling Calls to earn Premium and suppress the price… Similarly, Put options are not just for people fearing price drops, but there are also people buying Puts to Hedge and people selling Puts to guarantee prices as well.

Who buys Call options for speculation?

• Retail Traders typically believe the price will rise, buy Calls near the price (ATM/OTM) hoping to use little money to make big profits
• Some types of funds or certain places will buy Calls for short-term speculation, risk limitation, and only play in certain events. But the proportion might be very, very small compared to large funds

Who sells Call options to earn Premium?

• Market Makers are the ones who want to sell Calls to anyone who wants to buy, receive Premium, manage risk with Futures. Their goal is to make the sold Options expire worthless -> This means the price shouldn’t rise sharply or at least shouldn’t pass the Strike
• Funds that play Short Volatility will sell Calls, sell Puts, receive Premium to make the market stable (low volatility) so they can gain an advantage when the market is in a Sideway phase and Options expire worthless. They might not have to suppress the price themselves but get support from Dealers
• Commercial Hedgers (some) such as gold mining companies, large gold traders, etc. They will sell Calls to lock in prices to hedge risks (not the ones suppressing prices in Intraday)

So how does price suppression happen?

The answer is Delta Hedging. When Dealers sell Calls, they have negative Delta, and if the price goes up, they’ll lose. What they’ll do is Short Futures according to the Delta value. This means the closer the price gets to the Strike, the higher the Gamma, the thicker the Call OI will be. The result is to Short, and the price will be pushed down according to the Option market mechanism

So we can see that lots of Calls ≠ price must go up and lots of Puts ≠ price must always go down. Moreover, another important thing is “Who holds these OI contracts? And how do they benefit from these prices?”

Is Open Interest really where the big money is?

The answer is yes, but not in the way most people understand. Because in fact, Open Interest is the position where big players’ money is working, not the position they will enter or exit immediately. And from a money perspective, it means that point still has many contracts that haven’t been closed, and every contract has someone holding real risk, real margin, real Delta / Gamma / Vega!!!

And when we say big money is working there, it’s because when OI is high enough at any Strike, these things will happen:

• Dealers must Delta Hedge all the time
• Gamma will be high when the price approaches the Strike
• Futures will be bought/sold automatically
• The price starts to move unusually around that zone

If we still don’t understand this, it might lead to mistakes in trading with Option Data. For example, if you see a lot of OI and rush into a Position right away, or see thick Put or Call somewhere and think the price will run there.

However, we can understand trading with OI data from many famous pages, each school will have similar and different teachings. But what the author has learned is the trading technique in the style of Mtraders that uses OI price as a kind of future price predictor, which has a level of accuracy comparable to Luffy’s observation Haki in Gear 5.

Open Interest Adaptive EA (dashboard)

Alright… I’ve given quite a long introduction because I want those who don’t know to understand what OI is and where it comes from… This dashboard is not yet an Auto system, we have to input the data ourselves.

The details shown on this dashboard are as follows:

• Delta price is the difference between Future price and CFDs price
• $Expected move is the expected price movement in USD
• %Daily Vol is volatility in %
• Markets status is the market structure
• %Max dd is maximum drawdown in %
• %Gain is profit in %
• $SL predicted is the amount expected to lose in trading in USD, calculated using the Stop Loss price
• $TP predicted is the amount expected to profit in trading in USD, calculated using the Take Profit price
• Future price now is the current Future price
• % Far from Lower is the distance from the current price to the lower block price in %
• % Far from Upper is the distance from the current price to the upper block price in %

Details of setting up the Open Interest Dashboard EA

1. Future_Price is the current Future price obtained from Investing.com
2. CFDs_Price is the current CFDs price
3. Call_1_Future_price is the Future price with the highest Call contract volume or within the SD range we want to trade
4. Call_2_Future_price is the Future price with the second highest Call contract volume or within the SD range we want to trade
5. Call_3_Future_price is the Future price with the third highest Call contract volume or within the SD range we want to trade
6. Put_1_Future_price is the Future price with the highest Put contract volume or within the SD range we want to trade
7. Put_2_Future_price is the Future price with the second highest Put contract volume or within the SD range we want to trade
8. Put_3_Future_price is the Future price with the third highest Put contract volume or within the SD range we want to trade
9. Vol_Settle is the actual trading volume (Volume) and the average price volatility in the Futures/Options market (Volatility). The dashboard will use this to calculate the possibility of price movement within that day
10. Mean_Price_Future is the Mean value we consider from the Implied Volatility (IV) line
11. Margin_level_limit is the margin we will limit. If it’s less than what we set, the dashboard will delete all other Pending orders we’ve placed to manage our funds and limit risk
12. Exp_in_H is the lifetime of Pending orders in hours
13. MA_Method is the method of calculating MA
14. Fast_MA is the MA line that is highly sensitive to price
15. Slow_MA is the MA line that is less sensitive to price
16. Time_Frame is setting for the price structure analysis using Diamond trend analysis principles to work
17. Z_order is a constant for the Input price and TP, SL buttons

How to find Input values

Mean, Call options, Put options, and Vol Settle values can be found from CME Group while the current Future price can be found from Investing.com — > After entering various data into the Dashboard, click OK --> Then click the Draw line button in the top right corner

>>> Download Dashboard EA Here <<<

— Free until December 31, 2025 —

Summary

I hope this article content will be useful for all of you. As for the trading strategy using Options Data, I’ll gradually cover it in the next article. Thank you.