Option Chain Analysis
Due to requirements from OPRA, EOD prices are not available until 9:30am ET of the next trading day. This means Friday prices cannot be published until the open on Monday.
The increase in open interest (OI) can be due to new contracts being created, either by "buy to open" or "sell to open" transactions. Determining whether the predominant activity is buying or selling based solely on open interest can be challenging, but there are a few indicators and strategies often used by traders:
Volume and Price Direction:
If the option price (premium) is increasing with an increase in volume and open interest, it might suggest that most of the trading is on the "buy to open" side. This is because if there's strong demand for an option, its price tends to increase.
Conversely, if the option price is decreasing while volume and OI are increasing, it might suggest "sell to open" activity, as increased supply can drive prices down.
Implied Volatility (IV):
A rise in IV along with an increase in OI might suggest more "buy to open" activity, as buying demand can drive up both the option's price and its IV.
A drop in IV with increasing OI might indicate more "sell to open" activity.
Compare with Underlying Asset:
If the underlying asset's price is rising, an increase in call option OI might be due to "buy to open" activity, as traders expect the price to continue rising.
Similarly, if the underlying asset's price is falling and there's an increase in put option OI, it might be due to "buy to open" for puts.
Level of Open Interest:
If OI is at an exceptionally high level, it might suggest that there's more "sell to open" activity, especially if the option is out-of-the-money. This is because many traders sell out-of-the-money options hoping they expire worthless.
Time to Expiration:
As options approach their expiration date, especially for out-of-the-money options, an increase in OI might more likely be from "sell to open" activities, as traders might bet on the option expiring worthless.
Other Market Data:
Some advanced platforms provide data on whether options trades were initiated by the buyer or the seller. This data can give a more direct insight into "buy to open" vs. "sell to open" activities.
It's essential to note that while these indicators can provide clues, they don't offer certainty. The actual trading intent of market participants can vary, and multiple factors can influence the dynamics of open interest. Always use a combination of data points and analysis methods to draw conclusions.
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