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Technology Stocks : USRX
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To: Janice Shell who wrote (16920)3/27/1997 9:47:00 PM
From: David Rosenberg   of 18024
 
Janice, thanks for clarifying this "esoteric" topic.

Our rules are identical if we consider your "new" to mean "an opener" and "old" to mean "a closer". Permit me to restate them as follows:

Rules of thumb (if this is of any use):

Your rule: 1. Open interest increases when a new long (="open" ) buys from a new short. (="open")

My formula: (1+1)/2=+1 or the open interest goes up by 1

Your rule: 2. OI decreases when an old long (="close") sells to an old short. (="close")

formula: [(-1)+(-1)]/2 = -1 the open interest goes down by 1

Your rule 3. OI does not change when a new long (="open") buys from an old long (="close") or a new short (="open") sells to an old short,(="close") as the new player simply replaces the old player.

formula: (+1) + (-1)=0 no change in open interest

So we are essentially saying the same thing, no?

One issue that is not clear to me is that of an "old" long
who wishes to act as a "new" short and not close his position
but rather keep his long position and just open a new short position
his position will be monetarily balanced or cancelled but on the books will still be maintained as two open positions and will artificially inflate the "open interest". If this is the case I "would pay no mind" to the published OI figures as they can be easily "cooked"!

David R.

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