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I was readying and article on volatility skew about stock options here and this sentence confuses me "Higher call volume does not necessarily mean more call buyers. Call traders may be selling calls.". I've seen situations where you have high volumes but open interest/contracts are dropping. Is this the situation that is being described? If not how can higher call volumes not mean more call buyers?

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I've seen situations where you have high volumes but open interest/contracts are dropping. Is this the situation that is being described?

No, that is not what is being described. If there is high volume but open interest is dropping, it means that counterparties are closing more option positions (BTC + STC) than they are opening (BTO + STO). Read this if you're not clear on how open interest changes.

"Higher call volume does not necessarily mean more call buyers. Call traders may be selling calls." ...how can higher call volumes not mean more call buyers?

For every transaction there are two counter parties, a buyer and a seller. If contract volume increases, there is an equal increase in the number of contracts bought and sold.

I think that the article is poorly phrased and falls short of a clear description. AFAIC, it's a common mistake to say that price is rising because there are more buyers than sellers of a security. Ten buyers of 100 shares means nothing in the face of one person selling 5,000 shares. It's the net aggregate buying (or selling) volume on one side that moves price if it takes out available size at current price.

I have a number of other issues with the content of the article but I'll pass on them since they aren't directly related to your question.

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  • Thanks for the link. Good point, the imbalance that moves prices is not on number of buyers/sellers but on buying/selling volumes regardless of participants on the two sides. I thought my interpretation could be correct, closing call contracts generates volumes but does not mean increasing calls buying (maybe this is a more correct way to say it). I still don't get that sentence which is only citing volumes, not number of participants.
    – noplace
    Jan 3 at 22:45
  • "I still don't get that sentence which is only citing volumes, not number of participants." Are you referring to what I wrote or something in the article? What don't you get about it? Jan 3 at 22:59
  • No, I'm referring to "Higher call volume does not necessarily mean more call buyers. Call traders may be selling calls.". You have high call volumes and yet it does not necessarily mean growing call buying. How can that be?
    – noplace
    Jan 4 at 8:56
  • I have read once more the article and now I understand your comment about volumes vs participants. The article says "An excess of call buyers reveals a skew that favors the stock price going up." and it is probably not perfectly correct as volumes really influence price movements and thus IV. The article author is taking a shortcut implying that more buyers means higher buying volume but yes it contributes to confusion.
    – noplace
    Jan 4 at 10:21
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    One of several misguided statements in the article is If call volatilities are higher than put volatilities, this indicates that traders are buying calls. An excess of call buyers reveals a skew that favors the stock price going up. It could also mean that call volatility is passive and that traders are selling puts and therefore put volatilities are dropping, favoring share price drop. He adds to the confusion by not clearly explaining that he's referring to volatility differences in different strikes not the same strike. His comparative references are not good. Jan 4 at 13:06

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