Net Trader Positions and Open Interest in Options

NET TRADER POSITIONS

It is possible to chart the trends of the three market groups, and to use those trends to spot extremes in their positions. One way to do that is to study the net trader positions published in Futures Charts. That charting service plots three lines that show the net trader positions for all three groups on a weekly price chart for each market going back four years. By providing four years of data, historical comparisons are easily done. Nick Van Nice, the publisher of that chart service, looks for situations where the commercials are at one extreme, and the two categories of traders at the other, to find buying and selling opportunities. Even if you don't use the COT Report as a primary input in your trading decisions, it's not a bad idea to keep an eye on what those three groups are doing.

OPEN INTEREST  IN OPTIONS

Our coverage of open interest has concentrated on the futures markets. Open interest plays an important role in options trading as well. Open interest figures are published each day for put and call options on futures markets, stock averages, industry indexes, and individual stocks. While open interest in options may not be interpreted in exactly the same way as in futures, it tells us essentially the same thing-where the interest is and the liquidity. Some option traders compare call open interest (bulls) to put open interest (bears) in order to measure market sentiment. Others use option volume.