I am analysing the price movement of a U.S. stock in conjunction with its open interest on calls vs puts. If within a month, the call open interest drastically declines (even relative to put open interest), could this lead to a drop in the price of the underlying?
My reasoning goes as follows. Investors buy calls in large quantities with the idea that the stock price will increase in the near term. They were right, the stock price has risen above the exercise price of their calls. When they exercise the calls, they buy the underlying for the strike price and simultaneously sell it for the higher market price. If everyone does this at the same time, won't it drive the price of the underlying down after the exercise? or am I missing something?