Open Interest
What it means and how to interpret it in options
What Is Open Interest?
Open interest (OI) is the total number of option contracts currently open (unclosed) for a specific strike and expiration. It is important not to confuse open interest with volume. Volume is how many contracts traded during the day; open interest is how many contracts currently exist unclosed. Think of open interest as the total number of live positions in play. If 100 contracts of an option are opened today and 50 are closed, open interest will have risen by 50. Each new expiration series starts at zero open interest and accumulates from there; a series’ open interest does not reset — it is extinguished when that series expires. This metric is crucial for understanding the liquidity of a specific option and how much trader activity there is at that particular strike.
Open Interest as a Liquidity Indicator
Open interest is one of the most important indicators of a specific option’s liquidity. High open interest indicates a lot of activity at that strike, which generally means you can enter and exit the position without large slippage. Low open interest, especially combined with low volume, indicates little activity and the possibility of struggling to close your position at a fair price. Bid-ask spreads tend to be tighter in options with high open interest. When selecting which strikes to trade, prefer options with meaningful open interest, particularly for short positions where you need to be able to close or roll the position easily. Avoid options with very low open interest unless you are buying as a long-term speculative bet.
Open Interest Patterns and What They Imply
Open interest follows predictable patterns as expiration approaches. In general, open interest for a given expiration is highest several weeks before expiry and falls dramatically in the final days as traders close or exercise their positions. When a new expiration opens, it initially has zero open interest and builds as traders start to position. Open interest also concentrates at specific strikes; it is typically highest at ATM strikes and falls toward deep ITM or OTM strikes. Watching where open interest is concentrated can give clues about where professional traders expect the market to trade. Large changes in open interest can indicate new positions being initiated or closed en masse.
The Difference Between Open Interest and Volume
It is critical to understand the difference between open interest and volume, because they are frequently confused. Volume is a short-term measure: how many contracts traded during a specific period (typically a day). Open interest is a cumulative measure: the total net number of contracts that remain open. An option can have very low volume during the day (little trading) but very high open interest (many existing positions from previous days or weeks). Alternatively, an option can have high volume (a lot of trading today) but low open interest (most of that trading was closing positions). When selecting options to trade, both metrics matter: ideally you want both volume and open interest to be moderate to high.
Using Open Interest Strategically
Professional traders use open interest data to inform their strategy decisions. A sudden jump in open interest at a particular strike can indicate a new market view or that an institution has taken a large position. Options traders also watch the ratio of call open interest to put open interest; a lopsided ratio can indicate directional bias. Some traders use open interest alongside price to identify psychological support and resistance levels where many traders hold positions. For option-selling strategies, high open interest is generally preferable because it makes closing the position before expiration easier if needed. For buying strategies, you may prefer moderate open interest with good volume to keep transaction costs low.