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In Options Trading, What Is Open Interest?

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Written by Timothy Sykes
Updated 4/21/2023 5 min read

Open interest in options trading measures how many option contracts have been taken out for a given asset. It’s an important measure that helps you spot trading opportunities.

You can think of open interest as a cousin to short interest and volume. It’s a sign that a stock or other asset could have much more volume coming to it.

Open interest is also an important measure of an option’s liquidity.

How does open interest accrue? How much is a good open interest? Read on to learn more!

New to options trading? Check this guide to the basics of options trading

What Is Open Interest?

Open interest measures the number of outstanding derivatives contracts for a given asset. Outstanding contracts mean they haven’t been settled. Open interest is used for both options and futures contracts.

Open interest counts the total number options contracts currently outstanding on an asset. These are options that haven’t been exercised… but they could still be!

Numbers are also kept on call open interest and put open interest.

Open interest goes down when option holders and writers close their active positions. Open interest goes up when market participants open new active positions.

Here’s an illustration of how open interest works:

Let’s say the total open interest in Company XYZ is 10,000. Then buyers purchase 5,000 call contracts, bringing the total open interest to 15,000. Then 2,000 of these contracts are exercised, bringing the total open interest down to 13,000.

Learning trading terminology is important. Read my posts about buy to open and spread option trading to learn more about important options trading terms.

Why Does It Matter?

Open interest matters because it’s a sign of an option’s liquidity.

A high open interest means there are many traders holding options contracts in a given asset. This means that there’s liquidity in the options market — options on the asset are being opened and closed at high frequency. That helps if you want to trade, write, or buy an options contract.

A high open interest is also a sign of potential stock trading volume. A high call open interest combined with bullish movement in a chart can tip savvy stock traders off to a future volume surge.

What Is the Difference Between Volume and Open Interest in Options Trading?

The main difference between volume and open interest in options trading is how they’re measured. Volume and open interest both measure liquidity and trading activity. But they do it in different ways.

Open interest measures them by counting how many options contracts are active. Volume measures them by counting the number of trades for that stock option in a certain period.

Another notable difference is the update frequency. Exchanges calculate options trading volume as it happens. Open interest is usually updated once per day..

Is using stop-loss orders a good idea? Read my post on stop-loss orders to find the answer.

What Is a Good Open Interest for Options?

Just like volume, traders shouldn’t be looking at a specific open interest number as “good.” Instead we look at unusual open interest as a sign of market sentiment.

A blue-chip stock like Apple Inc. (NASDAQ: AAPL) measures its average open interest in the millions. A lower-priced stock like C3.ai Inc. (NYSE: AI) has a much lower open interest of 480,000 at the time of writing…

But AI’s current open interest is 200% above its 52-week average! Meanwhile, Apple’s open interest of 6.7 million is lower than its average.

Key Takeaways

Open interest is an important measure in options trading. It shows you how many options contracts are currently active, which allows you to measure the option’s liquidity.

Open interest increases over time as traders open positions. It also declines over time as traders close positions. Options with higher open interest are more liquid. This means entering and exiting trades is easier.

The reverse is also true — options with lower open interest are usually less liquid. This makes entering and exiting harder.

You can use open interest to spot current market trends and trading opportunities. But it’s only part of the puzzle. You’ll need to put the entire puzzle together to become a self-sufficient trader.

If you want to fast-track your journey, you’ll need to find a good guide. In the options world, I think there’s no better mentor than my former student Mark Croock.

Mark has racked up $4 million in career earnings, mostly from trading options. He’s done this by adapting my penny stock trading strategies to options. Before he was a teacher, he was one of my best students — watching every single webinar in the Trading Challenge 2 or 3 times!

Now he’s got his own mentorship program, called the Evolved Trader. Check it out for strategy sessions, trade alerts, a great chat room, and more!

Are you interested in learning options trading? Start by reading my guide to learning how to trade options.

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Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”