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I have been observing the data for US stock options.

In general, it seem like there are more open interest for call rather than for put, is there a reason people like to write more call?

at the same time, some stocks have rather sharp ratio of put to call open interest (5:1 or 1:5), why would these happen? would market maker be rather exposed?

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In general, it seem like there are more open interest for call rather than for put, is there a reason people like to write more call?

In general, it is easier for most people to justify a bet on something going up rather than going down when talking about stocks and/or the stock market. Investor psychology is a very broad subject and there is plenty of information that can be found on the basics of it with a simple google search. While money can be made using puts in an uptrend almost as easily as calls, this is not something that is considered by most looking to make such a bet. For this reason, more call option contracts are traded and held onto (Open Interest) more than puts.

at the same time, some stocks have rather sharp ratio of put to call open interest (5:1 or 1:5), why would these happen? would market maker be rather exposed?

A high ratio of Call OI to Put OI (or vice versa) won't tell you a whole lot. You might consider it a measure of liquidity especially if you are looking to do some gamma trading close to expiration. The high OI strikes will likely (but not always, per my example) have decent volume due to people adjusting positions to avoid pin risk. An excessively high ratio could occur for a number of reasons. I'll give one example: Suppose I had a 1M share equity position in a stock that only averages 1M shares traded per day and I know I have to get out of it by Friday's close and I also know that I want to hold onto it for as long as I can. I could (1) sell calls that are in the money to try to pick up a few cents of premium with the intention of allowing them to get exercised and thus selling my stock or (2) buy puts that are deep in the money and exercising them at Friday's close to get rid of my stock (I would buy them deep in the money to avoid purchasing any Theta). If the call:put OI ratio was fairly even before that, it will be quite skewed afterwards because of my new position but this won't necessarily translate into a higher amount of liquidity or volume for that strike into expiry. It will actually be stagnant and meaningless because of my intention to not trade them further and take them into expiry for other purposes. Long story short: it's very tough to get info from this data that consistently means something.

For a market maker, the large OI ratio is meaningless. When a market maker takes the other side of a call trade they don't necessarily hedge with opposing puts. It might be much easier to continuously hedge their (always changing) inventory with the underlying equity or an equity swap.

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  • $\begingroup$ Thanks for the answer. About q1, that was what I thought and intuitively I think it makes sense. About q2, I agree with your arguments. I saw some papers define CallPut volume or open interest ratio as implied risk or sentiment. But I did not think it make sense because if that is the case, there is a bigger fool that is selling insurance when others are buying. $\endgroup$ – user201706 Mar 29 '17 at 15:09
  • $\begingroup$ @bloodyx Yes, in my experiences call put volume is much more valuable than OI and can yield far more consistent results. $\endgroup$ – amdopt Mar 29 '17 at 15:17
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At the index levels, it would make sense having more calls than puts, however at these index levels it would also make sense to see higher put to call ratios lol its just sentiment imho

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