Can someone explain

Discussion in 'Options' started by tradertravi, Mar 29, 2011.

  1. I am interested in this piece on CVI..

    Can someone tell me if that volume will translate into open interest? If not, does that mean a MM had to buy them?

    CVR Energy has rallied to multi-year highs, and traders are heading for the exit.

    optionMONSTER's tracking systems detected the sale of 2,125 May 20 calls for $2.70 against open interest of just 41 contracts. Almost all the trades priced at the bid price, which reflects the strong selling pressure.

    "CVI fell 1.17 percent to $21.92 in morning trading but has more than tripled since the beginning of September. The company has been riding a wave of bullishness among oil refiners as the market prices in higher volumes and better margins for the industry. The rally has brought CVI back to levels last reached in June 2008.

    The calls may have been sold by an investor who owns the stock and believes that it's done going up. That strategy would lock in an exit price of $22.70 but, if CVI falls below $20, the investor would keep the shares.

    Alternatively, the trader may simply be placing a bearish bet by writing calls instead of shorting the stock. There was also modest selling in the May 22.50 calls and the May 25 calls.

    Overall option volume in the name is more than 8 times greater than average so far today"
  2. MTE


    First of all, market maker's trades are no different from anyone else's, so whether the volume translates into open interest doesn't depend on whether a market maker was on the other side or not.

    For each trade there are 3 possibilities:

    1. Both parties are opening new positions. This would increase open interest by the number of contracts traded.

    2. Both parties are closing exsiting positions. This would decrease open interest by the number of contracts traded.

    3. One party is opening a new position, while the other is closing an existing. In this case the open interest wouldn't change.
  3. TY MTE

    Another dumb probably was someone selling calls and a MM buying as the Open inerest increased by the volume but I cant imagine all those contracts going to individual parties..Is that a shortsighted theory?
  4. MTE


    What do you mean by "all those contracts going to individual parties"?

    Are you asking whether each of those 2000+ contracts was traded by a different person?