Open interest and bullishness

Q: Does an increase in open interest imply a bullish sentiment?

A: The open interest only represents the total number of option contracts for a particular option series which have been opened but not yet closed out. For every open contract there is a buyer and a seller. Let's suppose we are talking about call options. When a new contract is establish, there is a buyer (bullish) and a seller (bearish). So if there is 100 new open contracts, there will be 100 bullish buyers and 100 bearish sellers. Since the number of bullish and bearish positions are equal, this indicates neither a bullish or bearish outlook.

More Frequently Asked Questions

  1. What are the differences between standardized options and employee stock options?
  2. I recently bought a call option. Since then, the stock price has risen and so has the call option. I wish to sell my call option for a profit but am I obligated to deliver the underlying stock if the option buyer decides to exercise his call option?
  3. I own options on a stock that has just declared a 2 for 1 stock split. What happens to my options?
  4. What's the difference between options and futures?
  5. Why do some stocks have options for trading while others don't?
  6. Can i be assigned if I buy-to-close a short position?

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