I noticed this yesterday when PRGS showed up on one of my option scans.

DTN (as well as IB) had the open interest of the March 30 puts (RGQ OF) as 555.

If you retrieve yesterdays historical ticks, you'll see that 500 options changed hands. Even if you assumed all of those were opening new positions, how is the RGQ OF Open Interest now 1554?

If you look at The OCC's history for yesterday, they do not summarize by strike, only by root code. Even if you take all of the put volume yesterday (960 + 842) / 2 = 901, add in all of the previous OI of 555, you still get an open interest of 1456.

At least 98 contracts were invented somewhere.

In addition, I know there were 370 RGQ Mar 25 puts traded. So, you'd get ((960 + 842) / 2) - 370 = 1011. In this case, an additional 444 contracts were invented.

Any insight into this discrepancy?

Edited by FullyArticulate on Feb 20, 2008 at 02:58 PM

HI FA,

I have no idea what would cause the discrepancy in the OI. I will forward your post to our Market Integrity dept to see if they can provide an explanation.

THANKS
Stan S

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We could learn a lot from crayons: some are sharp, some are pretty, some are dull, some have weird names, and all are different colors but they all have to learn to live in the same box.

Hello,

The 1,554 open interest in PRGS March 30 puts is what the exchange is reporting. As far as how it is possible for the open interest to increase by more than the volume, the exchange would have to answer that. Perhaps there were unreported trades, or the previous day’s open interest was reported incorrectly.

The market data group is still investigating this matter, and I will let you know if there is to be a correction from the exchange.

Kind regards,

Sarah
DTN Trading Markets

Hello,

This data issue where Open Interest drops out of thin air is an ongoing problem. Possibly contracts are traded (illegally) after market close. Could you please insist the exchange clear up this particular instance? Or alternatively, let them inform us where to participate in the after-market party. Thank you.
Edited by nonprophet on Mar 6, 2008 at 09:42 PM

Hi NP,

I will see what our market data group can do. We must report what the exchange is sending through, but some clarification on the discrepancy would be helpful.

If I find out where the party is, I will certainely let you know!

Kind regards,

Sarah
DTN Trading Markets

Sarah, on April 6 I emailed you a list with over 1,200 Volume/OpenInterest discrepancies but have had no response so far. Did you receive that list?

Hello, sorry for the delay, I have been out of the office. I will get back to you later on today.

Thank you for your patience,

Sarah

Hi Ron,

The volume and open interest for equity options are received from the exchange at around 5:30AM every morning. The way we interpreted your email is that you are trying to logically calculate open interest and volume for equity options. This is complicated because open interest and volume for options are not *entirely* calculated like stocks.

Stocks have a fixed number of shares to be traded but options can involve the creation of a new contract when a trade is placed. This implies that open interest will tell you the total number of option contracts currently open. This isn’t the case because selling an option can also add to the open interest. For example, let’s assume that I own 100 shares of Apple, trading at 148.05, and wanted to do a covered call by selling 10 of the April 170 calls (APV DN). This is an opening transaction and would add to the open interest. Meanwhile, repurchasing (or buying) these exact options would decrease the open interest by 10. Now, for a moment, lets assume these 10 options were not created by the transaction but instead were taken by someone doing a closing transaction. You are buying these ten and they are selling these 10 shares of the April 170 calls. The total interest will not change. This is where it gets *complicated* and why, just looking at the open interest, there is no way of knowing whether the option was bought or sold and whether the volume has been affected. We are confident that are open interest and volume calculations are correct.

I am hoping this explains the discrepancies you have noted. If you have further questions, please let me know.

Sarah

Hi Sarah,

The problem, as you can see from my first post, is that the open interest is radically more than the previous day's open interest + volume.

In other words, say today's OI is 100, and today's volume is 100. The maximum that OI can be tomorrow is 200, right? It could be as little as 0 (if all trades were closing), it could be as much as 200 (if all trades were opening), or it could be anywhere in between.

In the case I mentioned above (and many others), the new OI is dramatically more than the volume + previous OI. Somehow trades are happening which cannot be accounted for in the volume reported by DTN. In some cases, thousands of contracts cannot be accounted for.

This discrepancy makes understanding the flow of money within a stock very difficult. In one particular case, the missing options opening contracts represented, on a notional basis, *several times* the total stock volume of that day. This makes it very difficult to understand that market.

Either OCC/OPRA is giving out radically bad data (which should be identified and corrected for the good of all market participants, including your customers), or DTN is reporting bad data.

The data is essentially saying 1+1=7. That's not good for anyone. :-)

I am quite sure OCC/OPRA/Exchanges are the culprits, and DTN and other providers simply pass along the same data errors.

Sarah, if DTN is willing to take this issue to the data source then I could compile a list of more recent (like Apr 14-Apr 15) discrepancies.

I hope we can find DTN on our side to clear this up. Just let me know.

Sarah,

Is this issue still under investigation? Or is there still doubt about the validity of the complaint?

Sarah is out of the office today, let me see what i can find out.

Please keep pursuing this issue Articulate and post your results here. I am quite curious how the exchanges explain these ghost contracts that you discover.

JoeD
We are persuing this issue, unfortunitly it is taking longer that expected.
Thank you for your support and persistance.

Update:

They have accumulated a amount of data for some symbols and are going to approach the Exchange for the next step.

That’s wonderful. I’m just wondering lorenf, with your user status similar to mine (“Interested User”) are you speaking in name of DTN? (no offense please)
Edited by nonprophet on Apr 25, 2008 at 11:37 AM

Thanks Loren!

Yes, I am speaking in behalf of DTN.

Thanks. I’m not too familiar with the forum but it seems confusing not to have the DTN folks marked clearly. Just my opinion. But let’s focus on the issue at hand, that’s much more important.

I agree. In about 5 minutes that will be resolved

We will be getting Loren's account id changed.

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Jay Froscheiser
DTN - Trading Markets

Finally have an update for you.....

Our Market Data group spoke with our contact at the CBOE and two members of the Options Industry Counsel.

We learned of a possible rational explanation for the cases in which open interest decreased by an amount larger than volume. If an option was *exercised*, the exercise of that option would decrease open interest, but an exercise does not count as a trade. When options are exercised, open interest will decrease without a corresponding increase in volume.


Three of the four examples below involve open interest decreases and can be explained this way.

APV GE, a July 125 call: On 4/25/08, open interest is reported as 3941. On 4/24/08, open interest was 4102. So, open interest shrank by 161 contracts. But reported volume on 4/24/08 was only 89. It does not make sense for open interest to change by a larger number than the volume was.

AJL GH, a July 340 call: Open interest on 4/25/08 was reported at 1757, up by 41 from the open interest of 1716 reported on 4/24/08. But volume on 4/24/08 was just 17 contracts.

APV SV, a July 250 put. Open interest on 4/25/08 was reported at 5, down by 50 from open interest of 55 reported on 4/24/08. But volume on 4/24/08 was reported at zero.

APV QB, a May 210 put. Open interest on 4/25/08 was reported at 20, down by 270 from open interest of 290 reported on 4/24/08. Volume on 4/24/08 was reported at 183.


As for open interest increasing without a corresponding increase in volume, that can’t be explained by option exercise. The OIC said that a reporting or processing error is likely to blame for that instance.


Please let me know if you have further questions, and thank you again for your patience.

Sarah

Sarah,

Thanks very much for your efforts in clearing up this issue.

In my April 4 email I mentioned early exercise as possible explanation for the unexplained *DE-creases* in open interest. My accompanying list mentioned a total of 586,267 contracts divided among 969 different series that *DIS*appeared without volume. A more detailed analysis here could filter out those contracts that are reasonable early exercise candidates (For example any out of the moneys are not).

I did not go into that much detail because more troublesome indeed are the contracts that *APPEAR* without volume. As you mention, there is no explanation for these.

I attach the list here for anyone interested. This is not a monthly cumulation, these are only April 3 - April 4 overnight ghost contracts: 222,724 contracts among 300 series!

To explain away >200k contracts as reporting or processing errors seems unacceptable. Unless a more plausible explanation is given, in my opinion, we should at least consider the possibility of irregularities.

Is this conspiracy theory? I don't think so, perhaps others can weigh in, but I know this: let me pick just ten contracts daily to enter into after market close and I will retire in a few years. I think this should be investigated.

So far your response has been great, question is if you agree with my conclusions and/or are willing to pursue this further.