Course Name: Options Trading Strategies In Python: Basic, Section No: 2, Unit No: 7, Unit type: Document
Hello,
I am looking at the open interest of options and I am a bit confused as to how open interest can change. To my understanding, when someone buys an option, he purchases it from someone who already owns it. In other words the open interest remains the same after this transaction. The only case where the open interest changes is when an option expires.
What are other ways open interest can change? Can open interest increase and if yes, how? Does the company issue more options? If this is the case, how are they being made available to the buyers/sellers?
Thank you very much for your help!
Yiannis
Hi Yiannis,
A new options contract can be written by a market participant and this would increase the open interest. You may refer to this article for more information on option writing.
Subsequentially the open interest would decrease when the option is exercised.
Another way the open interest decreases if existing market participants are unwinding their positions.
Hope this helps!