Market Chameleon (2024)

FAQs

What does option open interest tell you? ›

Open interest refers to the total number of outstanding options contracts that have been traded but not yet liquidated or closed by either an offsetting trade or an exercise or assignment. 2 As a measure of liquidity in options markets, it represents the number of contracts that are still active.

Implied volatility rank is generally considered to be elevated (i.e. “high”) when it is greater than 50. Extreme levels in IV rank would be 80 and above. Alternatively, when implied volatility rank is depressed (<20) that may be viewed as a potential opportunity to buy options/volatility.

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On its own, high open interest simply indicates that the current market trend driving the underlying price is strong or, in other words, that there is investor confidence that the trend will continue. These trends can be bullish or bearish, high open interest just tells you that they trends will likely continue.

Is Higher Open Interest Better? High open interest usually indicates higher liquidity for a contract. This generally means there will be less difference between how much a trader wants for an option and how much another will pay. This can make it easier to buy and sell.

This rule suggests that a stock's price tends to move in cycles, with the first 3 days after a major event often showing the most significant price change. Then, there's usually a period of around 30 days where the stock's price stabilizes or corrects before potentially starting a new cycle [1].

Traders that are pessimistic like to buy put options as a hedge. This raises the IV of put options, indicating bearishness. Similarly, when traders do not protect themselves vigorously against strong market changes, their IVs fall. The majority of traders are comfortable with IVs of 20% to 25%.

IV can change often and will vary from one option to the next, even when the options are on the same underlying stock. All else equal, the higher the IV of an option, the higher the options premium, and therefore a bigger expected price change in the underlying stock.

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What is open interest? Open interest represents the total number of unfulfilled derivative contracts, like options or futures, awaiting settlement. Unlike tracking the trading volume, it monitors every open position in a specific contract. This metric offers a precise gauge of a contract's liquidity and interest.

Open Interest or OI

Open Interest means the Interest of traders during a specific strike price. The higher the amount, the Interest will be more among the traders for the actual strike price of an option. Since there's more Interest among traders, there will be high liquidity to trade your opinion.

The change in OI tab displays the change in Open Interest that took place during the day for each strike price and for each of the option type. A positive value indicates an increase in Open Interest for that day, while a negative value indicates a decrease.

High OI means that there are contracts available for trading. As OI only goes up when new or additional money is coming in the market, increasing OI indicates the presence of new buyers and sellers. Decreasing OI indicates an outflow of money.