Hi Nancy, I am not sure that I can be of much help to you in answering your questions.
I have never paid much attention to open interest when it comes to options other than as an indication of liquidity -- though I know some people use it as a tool in determining the likely direction of stock prices as expiration draws near,
But I shall try:
>>first, open interest - does that mean both long and short together ? or a netted figure ?<<
To the best of my knowledge the open interest on options, reported by financial publications, is stated cumulatively and not netted--but I don't follow the open interest in the IBD and am not sure how it is reported.
>>second, when put open interest is much larger (assume this is long put) then wouldn't it be a contrary indicator ?<<
Not sure--I think that the SPX and OEX options are used for hedging and therefore it is likely to cause distortions when viewed as a sentiment indicator. However the EPC ratio is viewed as a more reliable indicator of sentiment and this as you may know has shown heavy put buying ever since the sell-off gained force--and that suggests that any sell-off at least in the short-term will be limited.
In fact, although I am long OEX puts as of now, recent market action --unless it was heavily impacted by options expiration activities-- does not support any significant sell-off. However, various indices are at resistance levels and hopefully, it will give me an opportunity to exit at a profit.
>>But unless one knows what represents open interest, it is almost meaningless - CBOE's definition only says this is contracts remain open,( which could be long or short.)<<
This is true--and as I say the SPX and OEX ratios, are viewed as less reliable than the equity ratios because of the hedging that I referred to earlier.
Regards |
