Open Interest vs Volume for Stock Options
What if there is only one trading day and the volume is smaller than   the open interest on that one trading day. This is assuming there is   no open interest before that day? I pulled this from a comment. This can't happen. We have zero open interest on day one. On day 2, I buy 10 contracts. Volume is 10 and now open interest is also 10. Tomorrow, if I don't sell, open interest starts at 10 and will rise by whatever new contracts are traded.   This is an example. I removed the stock name. This happens to be the Jan'17 expiration. The 10 contract traded on the $3 strike happen to be mine. You can see how open interest is cumulative, representing all outstanding contracts. It's obvious to me the shares traded as high as $5 at some point which created the interest (i.e. the desire) to trade this strike. Most activity tends to occur near the current price. You are asking 'what if', do you have some anticipated answers? Having volume smaller than open interest is the norm. As far as I can tell, having only one trading day and no previous open interest only affects someone trying to sell a contract they are holding.  Meaning that if you only have one day to sell your contract then you need to offer it 'at market' or at the bid price (or even lower than the bid price). If you cannot sell your contract then you have to let it expire worthless or you have to exercise it. Those are your three options: let it expire, sell it (perhaps at a loss), and exercise it.  Edit: be careful about holding an in-the-money option. Many brokers will automatically exercise an in-the-money contract if you hold it till expiration date. "For stock options, where I'm used to seeing these terms: Volume is usually reported per day, whereas open interest is cumulative. In addition, some volume closes positions and some opens positions.  For example, if I am long one contract and sell it to someone who was short one contract, then that adds to volume and reduces open interest.  If I hold no contracts and sell (creating a short position) to someone who also had no contracts, then I add to volume and I increase open interest. EDIT: With the clarification in your comment, then I would say some people opened and closed positions in that one day.  Their opening and closing trades both contribute to ""volume"" but they have not net position in the ""open interest."""
"Just as a matter of research, apparently there is a way to find high option volumes such as a site here: https://www.barchart.com/options/volume-leaders/stocks However, that information is going to be heavily skewed by ""underlying security that moved a lot more than expected and probably got a lot of positions filled incidentally today"", but I think it is a good place to start building up a list of securities with a lot of option interest. There is also a tab there for ETFs. This will not tell you exactly that a particular stock always has high option volume, but most of the ones that show up there repeatedly and across multiple strike prices will meet your criteria." "Can anyone explain what each of them mean and how they're different from each other? When you ""buy to open"", you are purchasing an option and opening a new position. When you ""sell to open"", you are creating a brand new options contract and selling it. ""Covered"" means that you have assets in your account to satisfy the terms of the options contract. A ""covered call"" is a call option for which you own shares of the underlying stock that you will sell to the buyer at the option's strike price if he exercises the option. If you previously made a ""sell to open"" trade to create a new position, and you want to close the position, you can buy back the option. If you previously made a ""buy to open"" trade, you can ""sell to close"" which will sell back your option and close your position. In summary:" "In the US, stocks are listed on one exchange but can be traded on multiple venues.  You need to confirm exactly what your data is showing: a) trades on the primary-listed exchange; or b) trades made at any venue. Also, the trade condition codes are important.  Only certain trade condition codes contribute towards the day's open/high/low/close and some others only contribute towards the volume data.  The Consolidated Tape Association is very clear on which trades should contribute towards each value - but some vendors have their own interpretation (or just simply an erroneous interpretation of the specifications). It may surprise you to find that the majority of trading volume for many stocks is not on their primary-listed exchange.  For example, on 2 Mar 2015, NASDAQ:AAPL traded a total volume across all venues was 48096663 shares but trading on NASDAQ itself was 12050277 shares. Trades can be cancelled.  Some data vendors do not modify their data to reflect these busted trades.   Some data vendors also ""snapshot"" their feed at a particular point in time of the data.  Some exchanges can provide data (mainly corrections) 4-5 hours after the closing bell.  By snapshotting the data too early and throwing away any subsequent data is a typical cause of data discrepancies.   Some data vendors also round prices/volumes - but stocks don't just trade to two decimal places. So you may well be comparing two different sets of trades (with their own specific inclusion rules) against the same stock.  You need to confirm with your data sources exactly how they do things. Disclosure: Premium Data is an end-of-day daily data vendor." I think it depends on your broker. Some brokers will not try to auto exercise in the money options. Others will try to do the exercise it if you have available funds. Your best bet, if find yourself in that situation, is to sell the option on the open market the day of or slightly before expiration. Put it on your calendar and don't forget, you could loose your profits. @#2 Its in the best interest of your broker to exercise because they get a commission. I think they are used to this situation where there is a lack of funds. Its not like bouncing a check. You will need to check with your broker on this. @#3 I think many or most options traders never intend on buying the underling stock. Therefore no, they do not always make sure there is enough funds to buy. Double check with your broker, but if a series isn't open yet for trading, you can't trade it. If there is a series trading without open interest (rare), simply work your open, as options are created at trade. If you have enough money, do this https://money.stackexchange.com/questions/21839/list-of-cflex-2-0-brokers "Just as a matter of research, apparently there is a way to find high option volumes such as a site here: https://www.barchart.com/options/volume-leaders/stocks However, that information is going to be heavily skewed by ""underlying security that moved a lot more than expected and probably got a lot of positions filled incidentally today"", but I think it is a good place to start building up a list of securities with a lot of option interest. There is also a tab there for ETFs. This will not tell you exactly that a particular stock always has high option volume, but most of the ones that show up there repeatedly and across multiple strike prices will meet your criteria." My understanding is that all ETF options are American style, meaning they can be exercised before expiration, and so you could do the staggered exercises as you described. "Trying to ""time the market"" is usually a bad idea. People who do this every day for a living have a hard time doing that, and I'm guessing you don't have that kind of time and knowledge.  So that leaves you with your first and third options, commonly called lump-sum and dollar cost averaging respectively.   Which one to use depends on where your preferences lie on the risk/reward scpectrum. Dollar cost averaging (DCA) has lower risk and lower reward than lump sum investing. In my opinion, I don't like it. DCA only works better than lump sum investing if the price drops. But if you think the price is going to drop, why are you buying the stock in the first place? Example: Your uncle wins the lottery and gives you $50,000. Do you buy $50,000 worth of Apple now, or do you buy $10,000 now and $10,000 a quarter for the next four quarters? If the stock goes up, you will make more with lump-sum(LS) than you will with DCA. If the stock goes down, you will lose more with LS than you will with DCA. If the stock goes up then down, you will lose more with DCA than you will with LS. If the stock goes down then up, you will make more with DCA than you will with LS. So it's a trade-off. But, like I said, the whole point of you buying the stock is that you think it's going to go up, which is especially true with an index fund! So why pick the strategy that performs worse in that scenario?"