ITC Ltd Sees Sharp Open Interest Surge Amidst Weak Price Action

Open Interest and Volume Dynamics

The latest data reveals that ITC’s open interest (OI) rose sharply from 1,50,365 contracts to 1,79,189 contracts, an increase of 28,824 contracts or 19.17% on the day. This spike in OI was accompanied by a volume of 1,29,830 contracts, indicating robust trading activity in the derivatives market. The futures segment alone accounted for a notional value of approximately ₹1,14,585 lakhs, while options contributed an overwhelming ₹71,198 crores in notional value, underscoring the scale of derivative interest in the stock.

Despite this surge in derivatives activity, the underlying stock price declined by 4.57% on the day, closing near its intraday low of Rs 385. This price action contrasts with the increased open interest, suggesting that new positions are being established rather than old ones being squared off.

Price Performance and Moving Averages

ITC’s share price performance has been under pressure, trading below all key moving averages — 5-day, 20-day, 50-day, 100-day, and 200-day — signalling a sustained bearish trend. The stock’s decline outpaced the sector’s fall, with the Cigarettes/Tobacco sector dropping 4.71% on the same day. However, ITC marginally outperformed the sector by 0.92%, indicating relative resilience amid sector weakness.

The stock’s market capitalisation stands at a substantial ₹5,04,917 crore, categorising it as a large-cap stock. Yet, investor participation appears to be waning, with delivery volumes on 31 Dec falling by 45.53% compared to the five-day average, signalling reduced conviction among long-term holders.

Market Positioning and Potential Directional Bets

The sharp rise in open interest alongside falling prices typically points to fresh short positions being initiated, as traders anticipate further downside. Alternatively, it could also reflect long hedging activity by institutional participants seeking protection against continued weakness. The large notional value in options suggests active use of complex strategies, possibly including put buying or call writing, to capitalise on or hedge against volatility.

Given ITC’s Mojo Score of 46.0 and a recent downgrade from Hold to Sell on 29 Dec 2025, market sentiment appears cautious. The stock’s Market Cap Grade of 1 further indicates limited upside potential from a quality perspective. These factors combined with the derivatives activity imply that traders are positioning for continued pressure or volatility in the near term.

Liquidity and Trading Implications

ITC remains sufficiently liquid for sizeable trades, with a 2% threshold of the five-day average traded value allowing for trade sizes up to ₹13.91 crore. This liquidity supports active participation by institutional and retail traders alike in both cash and derivatives markets.

However, the sharp decline in delivery volumes suggests that long-term investor interest is diminishing, potentially increasing volatility as short-term traders dominate price discovery. The divergence between rising open interest and falling prices often precedes heightened volatility, which market participants should monitor closely.

Sector and Benchmark Context

While ITC marginally outperformed its sector on the day, the broader Cigarettes/Tobacco segment’s 4.71% decline reflects ongoing headwinds, including regulatory pressures and shifting consumer preferences. The Sensex, in contrast, posted a modest gain of 0.15%, highlighting the stock’s and sector’s relative underperformance within the broader market.

This divergence emphasises the challenges facing ITC and its peers, reinforcing the cautious stance reflected in the recent downgrade and derivative positioning.

Outlook and Investor Considerations

Given the current data, investors should approach ITC with caution. The combination of a fresh 52-week low, deteriorating moving average trends, and a downgrade to a Sell rating by MarketsMOJO signals limited near-term upside. The surge in open interest and options activity suggests that market participants are bracing for continued volatility or downside risk.

Long-term investors may wish to monitor delivery volumes and sector developments closely, while traders could consider derivative strategies that hedge downside risk or capitalise on expected volatility. The stock’s large market cap and liquidity provide ample scope for active trading, but the prevailing sentiment remains subdued.

In summary, ITC’s derivatives market activity reveals a complex interplay of bearish positioning and hedging, reflecting broader sector challenges and cautious investor sentiment as the stock navigates a critical support level near Rs 385.

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