OI/Vol - Doubts

Options & Futures
1

Course Name: Options Trading Strategies In Python: Basic, Section No: 2, Unit No: 7, Unit type: Document



I have following doubts: 



Question #1: 


  1. Day 01: Ishan sells 10 contracts. Hence, he is 10 short. 
  2. Day 02: It is mentioned that Ishan wants to get rid of his 5 contracts out of 10 contracts. 



    I do understand there is a concept of short sell where you tend to short a commodity/stock which you don't own but isn't this a scenario where Ishan ends up buying 5 contracts (5 Long) in the market where the only long contracts are that of Vibhu's and they're still intact in Day 02's scenario? 



    Question #2: 



    Could you give me a scenario in Day 02 where Open Interest would have reduced and Volume would have increased? I am thinking if Vibhu would have bought Ishan's contracts in Day 01 itself - what would it have meant for the OI. Wouldn't it be zero? 



    Question #3: 



    If the trasaction legs of Vibhu & Ishan in Day 01 are considered separate - why isn't the volume considered 20? My understanding is that when Vibhu's legs and Ishan's legs of the trade are matched then volume becomes 10.



    Please correct me if wrong. 



    Thanks in advance. 
2

I do understand there is a concept of short sell where you tend to short a commodity/stock which you don't own but isn't this a scenario where Ishan ends up buying 5 contracts (5 Long) in the market where the only long contracts are that of Vibhu's and they're still intact in Day 02's scenario? 



In the market, there are three players. Vibhu is not participating on day 2 that's why his 10 contracts are intact. But Ishan wants to get rid of 5 out of 10 short contracts. Akshay comes into the market and takes his 5 contracts. Ishan has now 5 open short contracts and Akshay also has 5 open short contracts. This transaction didn't create any new contracts. It was a simple transfer from one person to another. 



Could you give me a scenario in Day 02 where Open Interest would have reduced and Volume would have increased? I am thinking if Vibhu would have bought Ishan's contracts in Day 01 itself - what would it have meant for the OI. Wouldn't it be zero? 



On day 2, the total volume has increased from 10 to 15, while the open interest is still 10.

Yes, since there is no open contract, the open interest will be zero.



If the trasaction legs of Vibhu & Ishan in Day 01 are considered separate - why isn't the volume considered 20? My understanding is that when Vibhu's legs and Ishan's legs of the trade are matched then volume becomes 10.



Yes, you are correct. Volume is the number of contracts transacted every day. The transaction occurs only when there are buyer and seller. On day 1, 10 contracts are bought and sold to complete the transaction. Hence the volume is 10.

3

Thank you. Clear.