Table of Contents
What is open interest in futures and options?
Open interest is the total number of outstanding derivative contracts, such as options or futures that have not been settled. Open interest equals the total number of bought or sold contracts, not the total of both added together. Open interest is commonly associated with the futures and options markets.
How open interest is useful in futures?
Traders often use open interest as an indicator to confirm trends and trend reversals for both the futures and options markets. Open interest represents the total number of open contracts on a security.
What does negative open interest mean?
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.
What if open interest is high?
An unusually high or record open interest in a bull market is a danger signal. When a rising trend of open interest begins to reverse, expect a bear trend to get underway. If prices are declining and the open interest rises more than the seasonal average, this indicates that new short positions are being opened.
How to calculate open interest?
Open interest is calculated by adding all the contracts from opened trades and subtracting the contracts when a trade is closed. For example, Sharon, Cynthia and Kurt are trading the same futures contract. If Sharon buys one contract to enter a long trade, open interest increases by one.
What is the difference between open interest and volume?
Options or futures contract trading volume can only increase while open interest can either increase or decrease. While trading volume indicates the number of contracts that have been bought or sold, open interest identifies the number of contracts that are currenltly held.
What does open interest options mean?
Open interest is commonly associated with the futures and options markets, where the number of existing contracts changes from day to day. This differs from the stock market, where the outstanding shares of a company’s stock remain constant once a stock issue is completed.
How is open interest calculated?
How Open Interest is Calculated. Open interest is calculated by adding all of the contracts that are associated with opening trades and subtracting all of the contracts that are associated with closing trades.