Open interest (futures)

About: Open interest (futures) is a research topic. Over the lifetime, 47 publications have been published within this topic receiving 1073 citations.

Open Interest and Consensus Among Investors

Abstract: Recent studies (e.g., Verrecchia [1981]) have investigated conditions (if any) under which volume of security transactions can be used to infer consensus, or lack of consensus, of investors' beliefs. One conclusion is that volume cannot be used to infer the extent of consensus. This finding has motivated suggestions to examine other market variables (e.g., Morse [1981] and Morse and Stephan [1984]), which might be used for this purpose. Consistent with this suggestion, this paper reports the results of examining a new variable, open interest. Open interest is a market variable for assets with zero net supply (e.g., options and futures).1 It represents the total number of investors' long (or short) positions in one of these assets. Changes in open interest therefore reflect changes in the extent to which investors employ these assets in their portfolios. Open interest in an asset is clearly related to volume in that asset. Changes in open interest underlie changes in volume, in some sense. However, even casual observation suggests that there is no isomorphic (i.e., one-to-one) relation between the two. More formally, it is easy to show, using the triangle inequality, that volume is always at least as great as the change in open interest, and the relation need not be stable if investors can change sides in the market. (A proof will be provided upon request.) As a result, whatever information can be extracted from a scrutiny of open interest will be transmitted imperfectly to volume.

Informational Role of Open Interest and Transaction Volume of Options: A Meta-Analytic Review:

Abstract: The study examines the research literature pertaining to the informational content of open interest and transaction volume in a systematic manner. Our review upheld their informational role in esti...

Is Options Open Interest Information Useful in Trading? Evidence from Indian Equity Options Market

Abstract: (ProQuest: ... denotes formulae omitted.)IntroductionBlack (1975) suggested that informed traders might prefer trading in options market to stock markets because of the economic incentives arising out of lower transaction costs, less capital outflow, lower trading restrictions, limited loss potential, and higher leverage. Almost at the same time, Ross (1976) opined that options can improve market efficiency by permitting an expansion of the contingencies that are covered by traded securities. In the absence of complete markets, simple options are powerful abettors of efficiency in competitive equilibrium. The ever-increasing attractiveness of options market can very well be gauged from the total traded value in options market all over the world1, and Indian options market is no exception to this (Mukherjee and Mishra, 2004).2This behavior of markets had always attracted the attention of researchers, and many researches were conducted to see if there were any relationships between options market and the underlying assets market. One line of thought was: Does trading in options market provide information about future price movements in the underlying assets?If, as suggested by Ross (1976), options help to complete the market, agents with information about future contingencies should be able to trade more effectively on their information (Roll et al., 2007) and lead others to discover that information. Thus, options not only may lead the underlying assets in impounding information but also may provide information that simply cannot be inferred from the underlying assets markets (Bhuyan and Chaudhury, 2001). Similarly, if the assumptions relating to complete, competitive, and frictionless markets (Cao, 1999) are relaxed, introduction of option contracts can affect the prices of underlying assets (Mukherjee and Mishra, 2004). Therefore, if traders, with relevant information, choose to trade in the options market, not only the option prices and options market activity will become relevant in impounding the information and its subsequent discovery, options could in fact lead the underlying assets in terms of price change and trading activity.3This attracted the researchers' attention towards the information content of options trading. Initially, the focus was mainly on the option prices along with prices of other derivatives. Research on information content of non-price variables such as volume of trade or unique measures such as open interest and introduction of options emerged later (for example, see Cao and Ou-Yang, 2005; and Roll et al., 2007).4 Today, it is well documented that along with the price, non-price variables can affect the prices in the underlying asset market (Mukherjee and Mishra, 2004).In this paper, we study the relevance of options open interest in conveying information about the future price movements in the underlying asset.5 The basic premise of the study lies in the fact that financial markets are not complete, and information-related imperfections remain. At any point of time, agents with information about the underlying asset will prefer to trade in options and not the underlying asset. Those with positive information will establish long positions on Out-of-The Money (OTM) calls or short positions on In-The-Money (ITM) put options. With more favorable information, the distribution of their positions will shift to higher strike prices (deep OTM calls or ITM puts). Similarly, agents with negative information about the underlying asset will establish opposite positions (for details, see Bhuyan and Chaudhury, 2001). This leads to a distribution of open interests over various strike prices of call and put options, and keeps changing with time as new and more information flows into the system.However, all traders/investors may not have access to information relating to the underlying asset. The issue that we have tried to address is, can these uninformed traders/investors use this distribution of open interests, over different strike prices, to predict the price of the underlying asset at the expiry, and accordingly use different trading strategies (involving underlying asset alone, options alone or both options and underlying asset) to profit from the prediction? …

LEAPS of Faith: A Trading Indicator Based on CBOE S&P 500 LEAPS Option Open Interest Information

Abstract: A long standing debate has revolved around the question of whether information travels first to the stock market or to the stock options market. Using an open interest based predictor calculated from CBOE S&P 500 LEAPS options, we find evidence of strong predictive power from the options market on the underlying S&P 500 index. This evidence is supported by out-of-sample tests of a simple trading strategy using the open interest based predictor as a trading indicator. We illustrate the practical application of this strategy for an active manager using exchange traded funds with a variety of leverage and shorting constraints. The trading indicator is also shown to be useful for a semi-active manager employing enhanced indexing techniques.

Commitment of Traders Report: Angular-Based Graph Representation (Agriculture Contracts)

Abstract: In finance, a futures contract is a generalized legal agreement to buy or sell something at a predetermined price at a specified time later in the future, between parties anonymous to each other. The asset transacted is a commodity or financial instrument (in a general rule). The preordained price in which the assets are bought or sold is called forward price. The specified time when payment and delivery occurs is known as the delivery date. The Commodity Futures Trading Commission publishes the COT reports for the better understanding of the futures market. Particularly, the COT reports provide a breakdown of each Tuesday’s open interest for futures and options on futures markets in which 20 or more traders hold positions equivalent to or over the reporting levels established by the CFTC. COT reports released by CFTC are in either text or in spreadsheet format which are complicated and take some time to read and understand. Hence, here is an idea of developing an interactive graphical representation of all this data which will be filtered on various parameters such as desirable commodity, viewing date, different properties of the commodities, simple, understandable yet containing everything desired and also with a platform-independent way.