20 lines
1.3 KiB
Plaintext
20 lines
1.3 KiB
Plaintext
Open Interest and Volume
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Traders use many types of market data to make trading decisions. Two
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items that are often studied but sometimes misunderstood are volume and
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open interest. Volume, as the name implies, is the total number of contracts
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traded during a time period. Often, volume is stated on a one-day basis, but
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could be stated per week, month, year, or otherwise. Once a new period
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(day) begins, volume begins again at zero. Open interest is the number of
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contracts that have been created and remain outstanding. Open interest is a
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running total.
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When an option is first listed, there are no open contracts. If Trader A
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opens a long position in a newly listed option by buying a one-lot, or one
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contract, from Trader B, who by selling is also opening a position, a
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contract is created. One contract traded, so the volume is one. Since both
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parties opened a position and one contract was created, the open interest in
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this particular option is one contract as well. If, later that day, Trader B
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closes his short position by buying one contract from Trader C, who had no
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position to start with, the volume is now two contracts for that day, but open
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interest is still one. Only one contract exists; it was traded twice. If the next
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day, Trader C buys her contract back from Trader A, that day’s volume is
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one and the open interest is now zero. |