How do options on futures differ from options on the asset underlying the futures? The open interest in a futures contract changes from day to day.
Suppose that investors holding long positions are divided into two groups: A is an individual investor and OL represents other investors. Investors holding short positions are denoted as S. Currently A holds 1,000 contracts and OL holds 4,200; thus, S is short 5,200 contracts.
Determine the holdings of A, OL, and S after each of the following transactions.
a. A sells 500 contracts, OL buys 500 contracts.
b. A buys 700 contracts, OL sells 700 contracts.
c. A buys 200 contracts, S sells 200 contracts.
d. A sells 800 contracts, S buys 800 contracts. What determines whether volume increases or decreases open interest?