Open interest is the total number of outstanding option contracts that have not been settled, closed, exercised, or expired. Unlike volume which counts daily trades, open interest represents the total “open” positions in the market. High open interest indicates liquidity and interest at that strike price. Changes in open interest reveal whether money is flowing into or out of options.
Key Takeaways
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Open interest updates once daily after the market closes, while volume resets every morning, so reading them together shows whether today’s trades opened new positions or closed existing ones.
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Open interest rises by one contract only when a new buyer and a new seller create a fresh contract, and falls when an existing holder closes against an existing writer.
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Strikes with heavy put open interest tend to act as support and strikes with heavy call open interest tend to act as resistance; in the page example, 15,000 contracts at the $100 call marked the key level.
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Rising price with rising open interest confirms new money behind the move, while rising price with falling open interest points to short covering, a weaker and less durable rally.
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Total outstanding contracts (not daily trades)
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High OI = liquidity; Low OI = illiquid
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Rising OI = new money entering market
How Open Interest Works
OI tracks net outstanding contracts:
Open Interest Changes:
Day 1:
- Trader A buys 10 calls (new buyer)
- Trader B sells 10 calls (new seller)
- OI increases by 10 (new contracts created)
Day 2:
- Trader A sells 10 calls (closes position)
- Trader C buys 10 calls (new buyer)
- OI unchanged (one closed, one opened)
Day 3:
- Trader C sells 10 calls (closes position)
- Trader B buys 10 calls (closes position)
- OI decreases by 10 (contracts closed)
Quick Reference: OI Analysis
| OI Change | Volume | Interpretation |
|---|---|---|
| OI Rising | High | New positions entering |
| OI Falling | High | Positions closing |
| OI Steady | High | Day trading, no new commitment |
| OI Steady | Low | Little activity |
Example: Using Open Interest
Strike Analysis:
| Strike | OI | Volume | Analysis |
|---|---|---|---|
| $95 Put | 5,000 | 200 | High OI = support level |
| $100 Call | 15,000 | 3,000 | Very high OI = key level |
| $105 Call | 2,000 | 100 | Low OI = less significant |
High OI at $100 suggests market expects this level is important.
Open interest is the total number of outstanding option contracts. Unlike volume which counts daily trades, OI shows how many positions exist. High OI means liquidity and significance. Rising OI with rising prices is bullish; falling OI suggests positions closing.
OI and Price Action
| Price | OI | Interpretation |
|---|---|---|
| Rising | Rising | Bullish—new money supporting rally |
| Rising | Falling | Rally on short covering—weak |
| Falling | Rising | Bearish—new shorts entering |
| Falling | Falling | Selling on long liquidation—weak |
Using Open Interest
Liquidity Check
High OI = tight bid-ask spreads. Easier to enter/exit positions.
Support/Resistance
Strikes with high put OI often act as support. Strikes with high call OI often act as resistance.
Max Pain Theory
Price often gravitates toward strike where most options expire worthless (max pain).
Trend Confirmation
Rising OI confirms the move. Falling OI questions sustainability.
Common Mistakes
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Confusing OI with volume – They measure different things.
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Ignoring OI for liquidity – Low OI = wide spreads, bad fills.
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Not tracking OI changes – The change tells you more than absolute level.
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Over-relying on max pain – It’s a theory, not a guarantee.
How JournalPlus Tracks Open Interest
JournalPlus logs open interest at entry, helping you assess liquidity and track whether high OI strikes perform as expected support/resistance levels.
