I just want to mention a follow up to your excellent explanation of options.
David/Glenn, thanks for the excellent explanation! I am probably being thick, but I still don't exactly understand "open interest". Let me explain my confusion with an example:
Suppose I have 100 shares of USRX. I want to write 1 call contract for April 60s. So, I call my broker and ask him to write up this new contract. Clearly, the open interest goes up by 1 contract. I hope I am correct on this.
Now, if someone bullish on USRX buys the contract I have for sale, does the open interest go down by one?
Next, suppose the fella who bought my contract turns bearish and decides to sell the contract which I originally wrote. What happens to open interest now?
ie, does open interest indicate the number of contracts available for sale, or does it indicate the total number of contracts outstanding?
Help on this would be extremely valuable to my understanding.
Thanks!
Milan |
