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.
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