How does volume compare to the change in open interest?

[realmajor101]

I understand that open interest (OI) indicates the no. of outstanding contracts while volume refers to the no. of contracts traded.

When both parties open a new position, OI increases by 1. When both parties close a position, OI decreases by 1. When an old party passes off a position to a new party, OI remains unchanged.

But regardless of a contract being opened or closed shouldn't the volume increase per transaction?

Consider today's Nifty option chain for reference. Looking at, say 8300 call option, it is evident that the OI has increased by 22125. So, shouldn't the volume be >= 22125 rather than just 2006?

Now what am I missing here?

Edit: Another interesting observation is that the same day's Nifty option chain as per some other websites e.g. India Infoline, Money Control, Mostial Oswal, Sharekhan show different volume figures than that of NSE website. And guess what, the logic of volume being >= change in OI seems to hold true going by those websites' data! So, a question now arises that what exactly is NSE referring to by their definition of volume?

Edit 2: Thanks to /@notalkb4coffee for pointing out that NSE's open interest = No. of open contracts x Lot size. All the figures make sense then. Hence case closed!

 

[notalkb4coffee]

@realmajor101 Okay theres a simple explanation. Volume is in number of contracts. The OI is in number of shares. Each contract is 25 shares (now, in case of the Nifty)

 

[realmajor101]

@notalkb4coffee I am aware that NSE considers 'turnover' based on notional value of a contract which incorporates the number of shares in a contract. But AFAIK volume and OI are always in terms of the number of contracts only.

Quoting from this link on the NSE website itself:

Open interest is the number of contracts in futures and options which have been entered into by investors and which have not been closed out or expired. It gives an indication of the depth of the markets.

If that is really not the case, it would be great if you could please provide a link or some source for that information.

 

[notalkb4coffee]

@realmajor101 This is what they say on that page, but this is not how it works, unfortunately.

Look at the option chain. Every single OI element is a multiple of 25, for the Nifty. How is that possible if OI was number of contracts? Do people only trade 25 contracts at a time? (No, because I know at least 10 people that don't, including me)

This is not a coincidence, because you can look at it anytime - in your snapshot, or at the value currently, and the OI will always be a multiple of 25.

The volume, on the other hand is not a multiple of 25. So that is number of contracts, while OI is number of shares.

 

[realmajor101]

@notalkb4coffee Yes, that makes perfect sense and the numbers also do add up. It's just that I couldn't find any explanation on the NSE website regarding their own odd usage terminology. I am marking this query as resolved now. Thanks a lot!

 

[docrich]

@realmajor101 Gaah! You've come up with a question that is breaking our subreddit's 'No-questions-left-unanswered' streak.

I have no experience with Options. But Imma get back to you on this.

 

[realmajor101]

@docrich Uh-oh, don't let my question be one of those, please!

Almost giving up here, I was thinking of posting to other subs but then I had an observation (noted in the post update) which makes me wonder if the issue perhaps relates to NSE terminology/methodology exclusively. So, now I am not sure whether non-India subs can be of much help.

Also, while googling for nifty option chain this article by /@notalkb4coffee came up. Maybe he can throw some light here.