Open Interest

What is Open Interest?

Open Interest Open interest (OI) is the total number of outstanding option contracts at a given strike and expiration that have not been closed or exercised. It is a separate metric from volume — volume counts contracts traded today, while open interest counts contracts that exist and have not been settled. Open interest increases when a new buyer-seller pair opens a position, decreases when an existing pair closes, and remains unchanged when an existing holder transfers to a new holder. Open interest cannot exceed the total number of contracts ever opened (it always reflects current outstanding positions). OI is one of the most useful signals for understanding where institutional positioning sits. Strikes with concentrated OI tend to act as gravitational levels for price action into expiration — the basis for both the max pain theory and gamma exposure (GEX) analysis. Large OI at a particular strike means there's significant dealer hedging activity occurring at that price, which creates intraday support or resistance. Common patterns: - High call OI above current price often creates resistance — dealers short these calls hedge by selling stock as price approaches, capping rallies. - High put OI below current price often creates support — dealers short these puts hedge by buying stock as price approaches, cushioning declines. - Strikes with both high call and high put OI become pin zones, where the underlying tends to gravitate into expiration. Open interest is also a useful liquidity indicator. Options with high OI typically have tight bid-ask spreads and easy entry/exit. Options with low OI (under 100 contracts) often have wide spreads that erode trading profits. As a general rule, only trade options with at least 500 contracts of OI for retail-sized positions. OI changes day-over-day reveal positioning shifts. A large overnight increase in put OI on a specific strike often signals institutional hedging activity ahead of an event. A sudden drop in OI suggests positions are being closed, potentially signaling profit-taking or sentiment shift. For options screening, OI is a primary filter: avoid illiquid contracts (under 100 OI), favor moderate-to-high liquidity (500+ OI on the strike you're trading). Index options on SPX, SPY, QQQ routinely have 5,000-50,000+ OI on common strikes.