Been reading about options trading and keep seeing open interest mentioned everywhere. I understand volume but open interest is confusing me.
Does it actually matter for trading decisions? Some articles say it shows market sentiment but I’m not sure how to use this information.
Trying to learn more before putting real money in options.
Open interest shows how much money is tied to a specific strike price and expiration. Rising open interest with rising prices signals bullish sentiment, while falling open interest with falling prices tends to be bearish.
It’s essential to look at volume too. High volume with flat open interest signals closing positions, which means weaker momentum compared to when both are increasing together.
This video breaks down exactly how open interest affects your trading decisions:
Always check open interest before entering any options trade. Anything under 100 contracts and you might struggle to exit when you need to.
Open interest shows the active option contracts that are not closed or expired. Think of it like volume represents today’s trading activity, while open interest indicates how many contracts remain.
High open interest usually means better liquidity, which allows easier entry and exit. It’s wise to avoid options with very low open interest, as selling them may be difficult.
Skip anything below 200 open interest or you’ll get stuck like me.
Volume tracks daily trades. Open interest counts total outstanding contracts.
• Higher open interest = better spreads
• Low open interest = execution problems
• Sudden increases signal institutional activity
Check both metrics before entering positions.
My biggest options mistake was buying calls with zero open interest back when I started.
The spread was terrible and I couldn’t exit even when the trade moved in my favor. Lost $300 because nobody wanted to buy what I was selling.
Now I never touch options under 500 open interest. Learned that lesson the expensive way.