Open commitments

(1) Open interest is expressed in number of contracts. An opening transaction for both the buyer and the seller increases the open interest. Conversely, a closing transaction for both the buyer and the seller decreases the open interest. Exercising the option or delivering the underlying will also decrease the open interest. When the trade is an opening transaction for the buyer, but a closing one for the seller, or vice-versa, there is only substitution of one of the parties to an existing contract and the open interest remains unchanged. (2) In general, the open interest is relatively low on a back month contract and higher on a front month contract. However, in the days prior to maturity, the open interest usually declines dramatically because traders liquidate their positions to avoid having to make or take delivery of the underlying.