In: Finance
Calculate Open Interest at the end and explain each step
A long 50 B short 50
B long 20 C short 20
B long 20 A short 20
A long 20 C short 20
C long 20 D short 20
Solution:
Stage 1) A is long 50 and B is short 50.
It means that the Open Interest (OI) will change by +50.
Long | Short | OI |
A: 50 | B: 50 | 50 |
Stage 2) B long 20 and C short 20
It means that B is reducing its short position by 20 and C is going long by 20. There will be no change in the open interest as overall A is long by 50 and B is short by 30 and C is short by 20.
Long | Short | OI |
A: 50 | B: 30, C: 20 | 50 |
Stage 3) B long 20 A short 20
B and A are reducing their position by 20 by going long and short respectively. OI will reduce by 20
Long | Short | OI |
A: 30 (50-20) | B: 10(30-20), C: 20 | 30 (50-20) |
Stage 4) A long 20 C short 20
A and C are increasing their position by 20 by going long and short respectively. OI will increase by 20
Long | Short | OI |
A: 50(30+20) | B: 10, C: 40(20+20) | 50(30+20) |
Stage 5) C long 20 D short 20
C is decreasing its short position by 20 and D is increasing its short position by 20. There will be no change in the OI.
Long | Short | OI |
A: 50 | B: 10, C: 20(40-20) , D:20 | 50 |