How open interest can be greater than the contracts traded for that day

Is higher open interest good for options?

So open interest doesn’t necessarily indicate a bullish or bearish forecast. The main benefit of trading options with high open interest is that it tends to reflect greater liquidity for that contract.

What happens to open interest over the life of a futures 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.

What if open interest is high?

Increasing open interest means that new money is flowing into the marketplace. The result will be that the present trend (up, down or sideways) will continue. Declining open interest means that the market is liquidating and implies that the prevailing price trend is coming to an end.

Can the volume of trading in a day be greater than the open interest?

One way to use open interest is to look at it relative to the volume of contracts traded. When the volume exceeds the existing open interest on a given day, it suggests that trading in that option was exceptionally high that day. Open interest also gives you key information regarding the liquidity of an option.

Is open interest a good indicator?

Open interest is one variable that many futures traders use in their analysis of the markets used in conjunction with other analysis to support trade decisions. Large changes in open interest can be an indicator when certain participants are entering or leaving the market and may give clues to market direction.

How does open interest work in options?

Open Interest (OI) is a number that tells you how many futures (or Options) contracts are currently outstanding (open) in the market. Remember that there are always 2 sides to a trade – a buyer and a seller. Let us say the seller sells 1 contract to the buyer.

What does it mean if open interest is in negative?

A decline in both price and open interest indicates liquidation by discouraged traders with long positions. As long as this trend continues, it is a bearish sign. Once open interest stabilizes at a low level, the liquidation is over and prices are in a position to rally again.

How do you read the OI on an option chain?

OI tells you about the number of contracts that are traded but not exercised or squared off. The higher the number, the more is the interest among traders for the particular strike price of an Option. And hence there is high liquidity for you to able to trade your Option when desired.

How is open interest used in intraday trading?

Open interest has to do with derivative contracts like futures and options. It basically is the total number of outstanding open contracts at the end of a trading day. Now, when a fresh position is initiated, the open interest goes up. And when the position is closed, the open interest goes down.