Open Interest
- Thread starter umesh14
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What is Open Interest
Open Interest is the total number of outstanding contracts that are held by market participants at the end of the day.
It can also be defined as the total number of futures contracts or option contracts that have not yet been exercised (squared off), expired, or fulfilled by delivery.
Open interest applies primarily to the futures market. Open interest, or the total number of open contracts on a security, is often used to confirm trends and trend reversals for futures and options contracts.
Open interest measures the flow of money into the futures market. For each seller of a futures contract there must be a buyer of that contract. Thus a seller and a buyer combine to create only one contract.
Therefore, to determine the total open interest for any given market we need only to know the totals from one side or the other, buyers or sellers, not the sum of both.
The open interest position that is reported each day represents the increase or decrease in the number of contracts for that day, and it is shown as a positive or negative number.
How to calculate Open Interest
Each trade completed on the exchange has an impact upon the level of open interest for that day.
For example, if both parties to the trade are initiating a new position ( one new buyer and one new seller), open interest will increase by one contract.
If both traders are closing an existing or old position ( one old buyer and one old seller) open interest will decline by one contract.
The third and final possibility is one old trader passing off his position to a new trader ( one old buyer sells to one new buyer). In this case the open interest will not change.
Benefits of monitoring open interest
By monitoring the changes in the open interest figures at the end of each trading day, some conclusions about the days activity can be drawn.
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. A knowledge of open interest can prove useful toward the end of major market moves.
A leveling off of open interest following a sustained price advance is often an early warning of the end to an uptrending or bull market.
Open Interest - A confirming indicator
An increase in open interest along with an increase in price is said to confirm an upward trend. Similarly, an increase in open interest along with a decrease in price confirms a downward trend. An increase or decrease in prices while open interest remains flat or declining may indicate a possible trend reversal.
Ref: http://www.tradingpicks.com/open_interest.htm
Open Interest is the total number of outstanding contracts that are held by market participants at the end of the day.
It can also be defined as the total number of futures contracts or option contracts that have not yet been exercised (squared off), expired, or fulfilled by delivery.
Open interest applies primarily to the futures market. Open interest, or the total number of open contracts on a security, is often used to confirm trends and trend reversals for futures and options contracts.
Open interest measures the flow of money into the futures market. For each seller of a futures contract there must be a buyer of that contract. Thus a seller and a buyer combine to create only one contract.
Therefore, to determine the total open interest for any given market we need only to know the totals from one side or the other, buyers or sellers, not the sum of both.
The open interest position that is reported each day represents the increase or decrease in the number of contracts for that day, and it is shown as a positive or negative number.
How to calculate Open Interest
Each trade completed on the exchange has an impact upon the level of open interest for that day.
For example, if both parties to the trade are initiating a new position ( one new buyer and one new seller), open interest will increase by one contract.
If both traders are closing an existing or old position ( one old buyer and one old seller) open interest will decline by one contract.
The third and final possibility is one old trader passing off his position to a new trader ( one old buyer sells to one new buyer). In this case the open interest will not change.
Benefits of monitoring open interest
By monitoring the changes in the open interest figures at the end of each trading day, some conclusions about the days activity can be drawn.
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. A knowledge of open interest can prove useful toward the end of major market moves.
A leveling off of open interest following a sustained price advance is often an early warning of the end to an uptrending or bull market.
Open Interest - A confirming indicator
An increase in open interest along with an increase in price is said to confirm an upward trend. Similarly, an increase in open interest along with a decrease in price confirms a downward trend. An increase or decrease in prices while open interest remains flat or declining may indicate a possible trend reversal.
Ref: http://www.tradingpicks.com/open_interest.htm
Open Interest
Open Interest (OI) is the number of contracts outstanding in the marketplace. Open Interest only applies to futures and option contracts. Changes in open interest either confirms price action or acts as a warning of a potentially weakening trend.
A hypothetical situation is given next to help grasp the concept of Open Interest:
* A new futures contract expiration month is opened for trading. Currently, no one has bought or sold a futures contract.
* A trader (Trader #1) buys a futures contract, but in order for this to happen, someone has to sell that trader the future. Therefore, for every buyer there is an equal and opposite seller (Trader #2). When this transaction occurs, the open interest is increased from zero to one. There is now one contract outstanding in the marketplace.
* Trader #3 decides to sell a future and subsequently another trader (Trader #4) has to buy that futures contract; therefore, open interest is now at two.
* Trader #1 goes to the marketplace and sells his/her futures contract. Trader #3 decides to buy back his/her short future. After the transaction takes place, Trader #1 no longer owns a futures contract. Similarly, Trader #3 no longer owns a futures contract. Effectively, the marketplace has one less futures contract outstanding. The open interest went down to one.
Generally open interest increases over the life of the futures contract (note: futures contracts expire, same with options). When futures contract months or quarters transition from one month or quarter to the next month or quarter, the future closest to expiration (called the "front month") decreases in open interest and the next futures contract (called the "back month") increases.
Learning about Open Interest is important, but using it to help futures or options trading is better. Interpreting Open Interest is up next.
Interpreting Open Interest
Open Interest is a helpful tool in analyzing the strength of a price move. There are four main interpretations of Open Interest:
* If price increases and Open Interest increases, then their is strength behind the price move higher.
* If price decreases and Open Interest increases, then their is strength behind the price move lower.
* If price increases and Open Interest decreases, then their is weakness behind the price move higher.
* If price decreases and Open Interest decreases, then their is weakness behind the price move lower.
Analyzing Open Interest is a helpful tool in an options or futures trader's toolbox for determining the strengths and weaknesses of price trends.
copied from www.onlinetradingconcepts.com.
best wishes,
drpsiva
Open Interest (OI) is the number of contracts outstanding in the marketplace. Open Interest only applies to futures and option contracts. Changes in open interest either confirms price action or acts as a warning of a potentially weakening trend.
A hypothetical situation is given next to help grasp the concept of Open Interest:
* A new futures contract expiration month is opened for trading. Currently, no one has bought or sold a futures contract.
* A trader (Trader #1) buys a futures contract, but in order for this to happen, someone has to sell that trader the future. Therefore, for every buyer there is an equal and opposite seller (Trader #2). When this transaction occurs, the open interest is increased from zero to one. There is now one contract outstanding in the marketplace.
* Trader #3 decides to sell a future and subsequently another trader (Trader #4) has to buy that futures contract; therefore, open interest is now at two.
* Trader #1 goes to the marketplace and sells his/her futures contract. Trader #3 decides to buy back his/her short future. After the transaction takes place, Trader #1 no longer owns a futures contract. Similarly, Trader #3 no longer owns a futures contract. Effectively, the marketplace has one less futures contract outstanding. The open interest went down to one.
Generally open interest increases over the life of the futures contract (note: futures contracts expire, same with options). When futures contract months or quarters transition from one month or quarter to the next month or quarter, the future closest to expiration (called the "front month") decreases in open interest and the next futures contract (called the "back month") increases.
Learning about Open Interest is important, but using it to help futures or options trading is better. Interpreting Open Interest is up next.
Interpreting Open Interest
Open Interest is a helpful tool in analyzing the strength of a price move. There are four main interpretations of Open Interest:
* If price increases and Open Interest increases, then their is strength behind the price move higher.
* If price decreases and Open Interest increases, then their is strength behind the price move lower.
* If price increases and Open Interest decreases, then their is weakness behind the price move higher.
* If price decreases and Open Interest decreases, then their is weakness behind the price move lower.
Analyzing Open Interest is a helpful tool in an options or futures trader's toolbox for determining the strengths and weaknesses of price trends.
copied from www.onlinetradingconcepts.com.
best wishes,
drpsiva
Dear Friend,
I have bought Nifty Jan-2008 [email protected] and sold 6200 call for Rs.155/- Please let me. What will happen at the time
of expiry. Is this a hedging.
Regards
krishnan
I have bought Nifty Jan-2008 [email protected] and sold 6200 call for Rs.155/- Please let me. What will happen at the time
of expiry. Is this a hedging.
Regards
krishnan
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