Relationship between Open Interest and Implied Volatility

Question

Reference Request for any papers/articles that test the relationship between options open interest and its implied volatility.

E.g. I would assume that a high market maker short interest on a strike will lower the implied volatility. But I wanted a more formal way to model it.

Thanks.

Answer 1

You'll need to determine who is shorting. 1 open contract is long to one party and short to the counterparty.

• volquant: Edited the question. "high market maker short interest" . Let's say I have a way to determine that. In that case is there a way to model the open interest with implied volatility.
• Newquant: Yes. But you will also have to find a way to determine what is "high" and "low", since each option strike and maturity will have it's own OI history relative to TTE and moneyness. Perhaps comparing to the total open interest across the entire chain at that maturity would help? You may also find the squeeze-lemon GEX/DIX work helpful in your investigations.