As you can see, the number of options contracts in existence can vary depending on what trades are being made but, in any given day the open interest of an options contract can fluctuate quite dramatically. It's calculated at the end of each day rather than in real time, so whenever you see it quoted it would be accurate up until the end of the previous trading day.
Conversely, a number of traders over value the importance of it, believing it's the sole indicator of the liquidity of the contract.
The truth is actually somewhere in the middle. It's certainly relevant, but it's only one of three indicators of liquidity. The liquidity of options contracts is very important to traders. Liquidity gives you an idea of how easily specific options can be bought and sold at the market price. Highly liquid ones are generally easy to buy and sell, and orders will be filled quickly.
Ones with low liquidity, on the other hand, aren't necessarily that easy to trade. Ideally, you want to be trading ones with a high liquidity to ensure that you can enter and exit positions with relative ease. Options contracts that have a high open interest tend to also have high liquidity, but as mentioned above, there are other factors to consider too.
Those other factors are the trading volume of an option and its bid ask spread. High trading volume of an option generally indicates high liquidity.
Ab small bid does as well. Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors.
Open interest is the total number of outstanding derivative contracts, such as options or futures that have not been settled for an asset. The total open interest does not count, and total every buy and sell contract. Instead, open interest provides a more accurate picture of the options trading activity, and whether money flows into the futures and options market are increasing or decreasing. If a buyer and seller come together and initiate a new position of one contract, then open interest will increase by one contract.
Should a buyer and seller both exit a one contract position on a trade, then open interest decreases by one contract. However, if a buyer or seller passes off their current position to a new buyer or seller, then open interest remains unchanged. To understand open interest, we must first explore how options and futures contracts are created. If an options contract exists, it must have had a buyer. For every buyer, there must be a seller since you cannot buy something that is not available for sale.
The relationship between the buyer and seller creates one contract, and a single contract equates to shares of the underlying asset. The contract is considered "open" until the counterparty closes it. Adding up the open contracts, where there are a buyer and seller for each, results in the open interest. It's important to note that open interest equals the total number of contracts, not the total of each transaction by every buyer and seller.
In other words, open interest is the total of all the buys or all of the sells, not both. The open interest number only changes when a new buyer and seller enter the market, creating a new contract, or when a buyer and seller meet—thereby closing both positions. For example, if one trader has ten contracts short sale and another has ten contracts long purchase , and these traders then buy and sell ten contracts to each other, those contracts are now closed and will be deducted from open interest.
Instead, it is officially posted by The OCC the morning after any given trading session, once the figures have been calculated.
For the rest of the trading day the figure remains static. As you can see from figure 1, open interest can vary from the call side to the put side, and from strike price to strike price.
High open interest for a given option contract means a lot of people are interested in that option. The main benefit of trading options with high open interest is that it tends to reflect greater liquidity for that contract. So there will be less of a price discrepancy between what someone wants to pay for an option and how much someone wants to sell it for.
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