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Technology Stocks : 3Com Corporation (COMS)
COMS 0.001600.0%Jan 9 9:30 AM EST
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To: santhosh mohan who wrote (10552)11/20/1997 8:21:00 AM
From: Glenn D. Rudolph  Read Replies (3) of 45548
 
<<What does Open Interest actually mean? People say if there is a seller, then there must be a buyer. If Fred bought 5 contract at 2 3/4 and Joe sold 5 contract at 2 1/2(spread), what this trade will contribute to the open interest?>> If Fred has established a new long position then the OI increases by 5. If the purchase is to close a prior short position, then the OI decreases by 5. The same applies to the other side of the trade, regardless of whether it is the MM or some other party. Hope this helps. The above is not correct but the idea is there. OI is the number of open contracts. It matters not if the contract is short or long. For example, if one writes 5 naked puts, the OI increases by 5. The only person that can reduce the OI change by this new position is the person that did the writing. They must buy back the puts to close contract. The same applies if one buys 5 puts to open contract. That will increase OI by 5. That added 5 remains until that individual closes the contract. I placed in bold the open and close contract. This is the key. Any position taken that is an open contract position will increase OI. Any trade to close contract will reduce OI. I hope that clarified. Glenn
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