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Regarding options and assuming same strike price, what is the end result difference, other than increasing the open interest and potentially requiring more margin, between

  1. buy to open + sell to close
  2. buy to open + sell to open

Are there any benefits to use case (2) to "offset" a position ?

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If they are the same security, it should not be possible to do (2).

If it is possible, it could be viewed as non-compliant as you would be creating fictitious open interest. The regulators are quite keen to reprimand people who perform activities that could be viewed as 'painting the tape'.

  • Do you know whether clearing house make any difference between open and close order types ? – user66365 Jan 3 '18 at 16:25
  • The clearing house keeps track of open interest. If you're writing an option (selling to open) the open interest would increase; whereas if you are selling an existing option (selling to close) to someone who is buying to close, the open interest would decrease. – xirt Jan 3 '18 at 16:45
  • Given that clearing house (and probably broker) keeps track of open interest, do you have any idea why they continue to make a distinction between open and close orders ? If I buy to open to trader A and then A doesn't want to buy to close but B want to buy to open, then I guess I sell to open to B and I end up with long and short position or does the clearing house net all of that and I end up with no position ? – user66365 Jan 3 '18 at 19:56
  • Actually, does anything prevent a sell to close to be the counterparty of a buy to open that would let the open interest unchanged ? As the clearing house keeps track of all open interest, it would make specifying open or close completely useless, right ? It would just help trader to know is current position (long, null or short) at the time he places his order. – user66365 Jan 3 '18 at 20:29
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There's a bit of confusion here.

You cannot sell to open an option that you already own. Selling it removes it from your account and that is a sell to close.

You cannot "create fictitious open interest", aka "paint the tape" with open interest. Open interest is the total number of option contracts that are currently open.

In and of itself, writing an option (selling to open) does not increase the open interest.

There are 4 possibilities here;

STO

STC

BTO

BTC

If there is a BTO and a STO, a new contract is created and open interest increases by one.

If there is a BTO and a STC (or a BTC and a STO), the contract is just changing hands and open interest does not change.

If there is a BTC and a STC, an existing contract disappears and open interest decreases by one.

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