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How to Increase Yields with Open Interest

By Edited Jan 4, 2016 0 0

What is Open Interest? Open interest involves all the derivative contracts such as options and futures, which remain unsettled in the past period of time for a certain underlying security. If an individual has a huge open interest, it means that there is more liquidity and activity for their contract. Every buyer of a futures contract must have a seller too. A contract is considered open when the buyer or the seller opens their contract at least until the one of the parties closes the contract. Most analysts strongly believe that knowing about the open interest process can be useful in wise investments. Technical analysts see a growing open interest in any investment as one of the indications that there is new money starting to flow in the marketplace. However, decreasing open interest can be seen as the sign that the market may be starting to liquidate. It can also suggest that the existing price trends will change soon.

 

An important rule to follow is the idea that if there is an increase in the available open interest it is better for the investor. This is so because open interest availability assures that there is liquidity in the call option being traded at that moment. More liquidity also means that there are smaller spreads among the request and the bid in terms of which is better for you. That is true if you need to close on a position prior to the expiration. Generally speaking, always stick on to writing calls with a 1000 open interest or more. This is the basic value of called an open interest filter for most firms. Shares of the stock and open interest are two different things and no fixed numbers in option contracts. It could be either zilch, or it could be in the thousands, you never know! Remember that there are a lot of new option contracts being created everyday.

 

If you are interested in learning all about investment strategies and way to make sure your investments are well organized and diversified you may want to learn as much as you can about long term investment profitable options. For instance, option exercise like covered calls that are a way to increase your profits. In fact if you become familiar with all the different ways you can approach investments and learn all the strategies you can become an expert in all ways to maximize long term investments whether you are just working for yourself or have a list of client for whom you manage a portfolio. When managing investments, the best tactics is being well informed so that you will know which option exercise obtained the maximum results in the long term.

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