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What are trading volume-open interest and notional values

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What do you predict would happen to these measures if the notional value of a popular contract were cut in half? (For example, instead of an option being based on 100 shares of stock, suppose it were based on 50 shares of stock.)

Consider the widget exchange. Suppose that each widget contract has a market value of $0 and a notional value of $100. There are three traders, A, B, and C. Over one day, the following trades occur:

A long, B short, 5 contracts.

A long, C short, 15 contract.

B long, C short, 10 contracts.

C long, A short, 20 contracts.

a) What is each trader’s net position in the contract at the end of the day? (Calculate long positions minus short positions.)

b) What are trading volume, open interest, and the notional values of trading volume and open interest? (Calculate open interest as the sum of the net long positions, from your previous answer.)

c) How would your answers have been different if there were an additional trade: C long, B short, 5 contracts?

d) How would you expect the measures in part (b) to be different if each contract had a notional value of $20?

Reference no: EM131442440

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