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Strategies & Market Trends : Options for Newbies -(Help Me Obi-Wan-Kenobe)
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To: Grandk who wrote (1635)9/16/1999 1:58:00 PM
From: Madpinto  Read Replies (2) of 2241
 
Every option is a contract between two parties. The contract comes to be when a buyer purchases the option from an opening seller. To close a contract out, a long position must get matched with a short position. The original parties to the contract do not need to be the ones closing the contract. For instance, W buys a contract from X (OI=1). Y buys a contract from Z (OI=2). W sells a contract to Z (OI=1). One contract remains active (creating the open interest of one) even though the agreement was not made between the two original parties. An increase in option activity usually increases or reduces OI. When OI increases, I usually look for an move in the stock near the option month because (IMO) some investors are taking a position that something will happen.
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