QUERY - OPEN INTEREST IN FUTURES

Options & Futures
1

Course Name: Futures Trading: Concepts & Strategies, Section No: 7, Unit No: 4, Unit type: Quiz

 

Hello, 

I am confused as to why there is no change in Open Interest when Alex sold the contract to Charlie because one contract got settled .

Please clarify

2

Hi Mayank,



When Alex sells the contract to Charlie, the contract is not settled. Rather, it is a simple transfer of ownership from one person to another. This transaction did not create any new contracts in the market, and thus there is no change in the Open Interest. 



When Alex buys the contract from Bob, Alex becomes the holder of a new contract, i.e., Alex is long on the contract and Bob is short on it.

When he sells the contract to Charlie, he closes his position on the contract and now Charlie assumes the long position. So there is no net change in the Open Interest for the second trade, as the contract created after the first trade is still outstanding.



Hope this helps. Please feel free to reach out in case of any more queries.



Thanks