When No Change in Open Interest then how option writers close their positions?

[Nitin Bhatia]

Ref to my tweet

🔴🔴 Option Chain is SUPREME 🙏🙏 50 points today…Those who are testing the accuracy of Intraday Strategy got the answer..There is NO ALTERNATIVE to Practical Learning. pic.twitter.com/zOiujTev3F

— Nitin Bhatia (@nitinbhatia121) October 22, 2020

I received a query that how i found out put writers are closing their positions as there was NO change in COI?
Ans: When a market is in a particular trend say uptrend in the above example and put writers are ACTIVE i.e. bullish view on market. If the smart put writers find out that the market can reverse and they might incur a huge loss. Therefore, they rush to CLOSE their positions.

In this case, the prime objective is to close the positions without any loss or with minimal loss. They try to suck the liquidity of market. Therefore, volume will increase but there is NO change in the open interest if the sentiment is strong as the sentiment was strong bullish on 22nd Oct (Check tweet) therefore not much change in COI. If the bullish sentiment would have been weak then you might have observed decrease in open interest i.e. -ve COI.

In short, some big player is sucking the liquidity thus cause the squeeze in the Change in Open Interest. The COI/Volume will start decreasing i.e. existing positions are getting CLOSED. They will not allow premium to increase as they are buying so premium might decay or might not decay depending on how well they manage this situation. If premium increase they will lose profit or will be in a loss. However, as per bigger fool theory, the bigger fool (retail investors) was writing the option as the sentiment was strong bullish & thus lost heavily in the end.

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