On a day to day basis, you can determine if unusually large transactions were opening or closing by comparing the open interest the next day. I’m looking for that same ability but back further in history. Example, open interest was 12k seven trading days ago and a 10k transaction occurred on that day. If OI the next day, six days ago, dropped to only around 2k (assuming no other significant volume), it would seem to be a closing transaction. If OI the next day, instead is around 22k, it’s probably an opening one instead.
Open interest by itself doesn’t tell you anything about what the investor’s intention was opening the position unless you have this historical OI data. The put/call ratio by itself is inconclusive for indicating sentiment. After all, say puts weren’t bought to open and bearish but instead those puts were sold to open and bullish. It seems like many times the institutional side will make large 1000+ contract trades with calls that aren’t actually bullish or with puts that aren’t actually bearish. Other than selling to open maybe being the best choice for a particular trade, perhaps it’s done also to throw off the naïve retail masses. Many don’t understand that positions can be opened by selling calls or puts instead of buying them. They could intentionally trying to have the put/call ratios to be misinterpreted by retail. Truth is, Even if you see 10 times more puts in open interest than calls and you can’t assume bearish sentiment.
A chart of historical open interest for every individual derivative in an option chain is what I seek. It would look just like the historical chart for the option itself. Does Anyone use one? Does one exist? If so, where can it be found?
Thank you.
Leave a Reply