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INTRODUCTION
Open Interest is the total number of options and/or futures contracts that are not settles on a particular day. In other words, it 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 measures the flow of money into the futures market. (Contd.)
INTRODUCTION
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. For each buyer of a futures contract there must be a seller. From the time the buyer or seller opens the contract until the counter-party closes it, that contract is considered 'open'. Thus a seller and a buyer combine to create only one contract.
Price Rising
Rising
Falling Falling
Falling
Rising Falling
Market is Weakening
Market is Weak Market is Strengthening
A leveling off of open interest following a sustained price advance is often an early warning of the end to an uptrend or bull market.