Open Interests are used as an indicator of strength of the trend. It represents the total amount of derivative contracts held by traders, in other words the open positions on a given moment.
It is calculated by adding all the open positions and deducting all the closed positions. Therefore it allows to follow entering and exiting capitals on the market.
Example: #
Let’s take a buy option A.
On Monday, the open interest of the buy option is 0.
On Tuesday, an investor buys 5 contracts A and therefore opens a position.
The open interest equals 5. On Wednesday, 3 contracts are closed and 10 are opened. The open interest equals 12.
Possible scenarios: #
The open interest decreases when buyers and sellers of contracts close more positions than they open, and vice versa.
Therefore it is linked to the volume and the price of the asset. It can be used to determine the engagement and the sentiments of professionals on the market.
