How open interest can be greater than the contracts traded for that day
Here is option chain data I am referring to.
I was going through the option chain data. I noticed that the change in open interest was more than the volume that traded on that day. How is this possible as per open interest theory? Can someone correct me where I am wrong?
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The easy answer is that you are looking at bad data. And then there's Plan B:
If one party is opening the position and the other is closing it then Open Interest will not change (volume increases).
In order for Open Interest to change, both parties must be either opening the option position or closing it (same option). So if the transaction is BTO and STO, volume is one and OI increases by one. Therefore, it is impossible for OI to increase without that same increase in volume.
The short answer? Open Interest is calculated once a day by the OCC after the close of the trading day and it is made available at the start of the next trading day.
Change in Open Interest is shown at market open, based on data resolved from the previous trading day.
But even if it was shown during the same trading session, volume wouldn't necessarily show all the changes because people can exercise their options contracts too, early (in American style contract) and this wouldn't be reported as trade volume.
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