I was reading on option trading put option. They have stated that Volume on put option is less then the call option.
Is it true? If it is why ?
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2 Answers
Yes, and there are multiple reasons.
- it's one notch more complicated to understand
- people believe more often in share values increasing
- the amount you can theoretically make on a call is unlimited, on a put not
- it's easier to predict a value increase
There is no technical reason, just demand is generally lower.
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2positive news about a company is easier to get than negative news. For example, there will be rumors about the next iPhone, and if the rumors sound really good, people go and buy calls for APPL. But when negative news come out, they are typically out as a fact, and it's too late to buy puts.– AganjuJun 27, 2016 at 23:57
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In addition to the good points made by user Aganju, the popularity of the "Covered Call" option strategy will contribute to the higher open interest found in call options over put options.
Not only do individual investors and institutional investors find this an attractive strategy, but there are also a number of large ETFs which offer a covered call overlay. All of this adds to open interest in call options.
If you are not familiar with this option strategy, it simply involves taking short positions in out-of-the-money call options covered by your physical share holdings. This can enable you to generate extra income from your holdings but it does carry the risk of giving up some of the upside in a share price if you find your options moving in-the-money.
You can read about this popular strategy, and the risks involved, on the Investopedia page detailing the covered call strategy.
