2

Example

Notice how at the strike price of 30 and 35 for Puts, you have volume at 22 and 7, but Open Interest at 0.

If volume is the number of trades made a day, and Open Interest is the number of contracts held by people, how on earth can Volume be greater than Open Interest? It doesn't make sense.

  • 1
    Why can't a contract be traded multiple times? Same as a stock. – JoeTaxpayer Jul 4 '17 at 18:58
  • Regardless if the contract is traded multiple times it still doesn't explain how on earth there is 0 Open Interest. There has to be at least 1 contract in existence to be traded – HappyTurtle Jul 4 '17 at 19:16
  • I believe it's been 0 all day. It wouldn't make sense for someone to have exercised the put option considering this picture was taken after the ISCA Earnings Report (This was yesterday), and their stock price has been going down, so there would be no reason to exercise it anyway – HappyTurtle Jul 4 '17 at 19:32
  • Not at all, the day ended with no open contract, all closed. – JoeTaxpayer Jul 4 '17 at 19:32
5

Volume tells you how many trades occurred over the course of the day. Open interest is how many contracts are outstanding at that moment. So your question essentially asks how the open interest on an option can decrease---what can cause liquidation of an option? There are a few ways. These are the ones I could think of:

  1. Open interest decreases when options are exercised. If this is not the settlement date, and if it's an American-style option, you may be looking at an early exercise situation.
  2. Open interest can decrease via an offsetting trade. For example, if the option writer (creator) no longer wants to be on the hook for this option, they can basically purchase the option from the option holder and get out of their obligation. That is, if the option writer also owns the option, then the option disappears and is removed from open interest.
  3. Options may disappear when the option writer violates their margin agreement and gets forced liquidation of their position.

My guess is that one of these situations (or something similar) occurred after some trades happened. My money is on #2.

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