BetaPro Natural Gas Inverse Lever Daily Bear ETF T.HND

RE: RE: RE: build

[lavastorm]

Open interest is the options trading market's way of recording how manyoptions contracts are there floating around in the market. Whenan option trader creates a new options contract and sells it in theoptions market to a buyer, open interest increases by 1. When thatbuyer exercises that options contract or sells it away, open interestdecreases by 1.

To understand open interest, you need to think of options contracts ascommodities or goods. The OCC (Options Clearing Corporation), whichoverseesthe options market, keeps track of how many commodities are availablein that marketplace by calling it Open Interest.

For example, when youbuy to open 5 contracts of call options, the open interest of those call options increases by 5. This is because the sellers,who really aremarket makers, created new call options contracts and sold it to you, increasing the inventory of options contracts in themarketplace by 5. When yousell those call options contracts orexercise them, market makers take those call options back from you andhence from the marketplace and open interest reduces by 5.

In actual fact, that is all open interest mean. It only indicates howmany open positions there are of each options contract in the optionsmarket. It is not a number that tells you whether the market will goup or down. However, it does give you an indication on theliquidity of theoptions contract that you are going to trade and also tells you whether more people have traded call orput options and still holding those positions.

So, does it mean that a stock is going to go up if it has more openinterest on its call options than put options? Not at all.What open interest does not tell you is whether the open position is ashort or long position. Options traders who think the stock is going togo down could open a short position on itscall options and still increase the open interest of its call options.


In conclusion, open interest may be able to provide an indication on the liquidity of a stock's options contracts but it definitely isn'ta mathematically proven indicator of where a stock or the market is going to go.