Understanding Open Interest in Options Trading
Open interest is the total number of option contracts for a given strike and expiration that are still open (not closed, exercised or expired) at the end of a trading day. It rises when a new buyer and a new seller open a contract, and falls when both sides close one. High open interest usually means a contract is liquid, with tighter bid-ask spreads, while rising open interest alongside a price move suggests new money is backing that move.
Try it in your own spreadsheet
Get the free MarketXLS sample workbook (.xlsx).
No account needed. MarketXLS live data requires a paid plan. Preview workbook
Explore more videos
Open interest vs volume
Volume is the number of contracts traded during a day, whether the trades opened or closed positions. Open interest is the number of contracts still outstanding after the day ends, and it is updated once per day. A contract can trade heavy volume with little change in open interest if traders are mostly closing positions.
What changes in open interest can signal
- Rising open interest and rising price: new positions are being added in the direction of the move, which suggests conviction.
- Rising open interest and falling price: new positions are being added on the way down.
- Falling open interest: positions are being closed, which can mean a move is losing participation.
- Large open interest at one strike: that strike may attract attention near expiration, and those contracts are usually easy to trade.
Open interest does not tell you whether the new positions are bullish or bearish on their own, because every contract has a buyer and a seller. Use it alongside price, volume and implied volatility.
How to use open interest
Traders use open interest mainly to judge liquidity before choosing a strike: contracts with higher open interest and volume generally have narrower spreads and lower trading costs. It is also used to spot unusual activity, such as a sudden jump in open interest in a far out-of-the-money option.
Viewing open interest with MarketXLS
MarketXLS is an Excel add-in whose option chain function, =QM_GetOptionChain("AAPL"), returns each contract's bid, ask, volume and open interest, so you can sort and filter contracts by open interest in a spreadsheet. Options data is end-of-day on the Standard plan and real-time on the Advanced and Business plans. This article is educational and not investment advice.
Search for all templates in the MarketXLS templates library.
Relevant blogs that you can read to learn more about the topic
Unusual Options Activity – How To Identify, Act And Track For Success
