When derivative market observes decrease in overall notional amount but increase

Question

When derivative market observes decrease in overall notional amount but increase in market values of all outstanding contracts, this is an indication that :

(A) Investors increase their positions and risk exposure in derivative markets

(B) There has been tremendous price volatility recently which force traders to close their positions, either to secure their profit (winners) or to prevent from further loss (losers)

(C) Many investors rush into the derivative markets and cause an increase in the overall market value of outstanding contracts.

(D) There is greater default potential in the near future because an increase in market value also means that some investors, who may have suffered a great deal of loss, are due for margin calls very soon.

Explanation / Answer

(B) There has been tremendous price volatility recently which force traders to close their positions, either to secure their profit (winners) or to prevent from further loss (losers)

Decrease in notional value means that some positions have been closed by the traders, otherwise notional value would not have changed.

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