How can I use the Open Interest (Option) to strategize my stocks trading

Question

. Some people say the market movers move the stock market is the direction which they have to pay the least amount of money to option traders in 3rd Friday the month.

I try to use Open Interest in option to make sense of market

Answer 1

<<<How can I use the Open Interest (Option) to strategize my stocks trading>>>

You can use it any way you want to.

My recommendation is to use open interest as an indication of liquidity. Since you would prefer to trade options with more liquidity you should prefer to trade options with higher open interest figures.

<<<Some people say the market movers move the stock market is the direction which they have to pay the least amount of money to option traders in 3rd Friday the month.>>>

I agree that some people say that, but that does not mean that it is true.

What I believe you are describing is a variation of the "max pain" theory, the theory that the price of a stock often settles around the point where the majority of the option buyers lose the most - hence max pain.

While there is some scientific basis for the theory, it is based on market makers hedging techniques as opposed to intentional market manipulation.

The problem with trying to utilize this theory in your trading is that it doen not happen a high enough percentage of the time to be useful. The vast majority of the time it does not happen, so attempting to profit from the few times it does happen means being wrong much more often than being right.

<<<I try to use Open Interest in option to make sense of market >>>

I think you will find there are many much more profitable ways to spend your time. Learning more about implied volatility, risk factors and hedging techniques will be much more profitable.  

Answer 2

The problem with using open interest as an indicator, is trying to determine how much is actual taking of a position, and how much is just hedging by institutions.

There is no single indicator that will make sense of everything, or else we would all be rich. But the trend is your best friend.