I have been trading for a while but this open interest term keeps coming up and I honestly do not understand it.
I saw charts with open interest numbers but I am unsure what they mean. Does it influence my trade decisions?
Understanding this better would be really helpful.
It’s the total number of open contracts that are still active in the market.
Open interest serves as a measure of popularity for options. When the numbers are high, it indicates many traders are holding these contracts, making them easier to trade.
On the other hand, low open interest may leave you with contracts nobody wants to buy. It’s wise to review this before making trades, particularly on contracts nearing expiration.
While volume shows today’s activity, open interest reveals who remains engaged in the market.
When I started trading, I completely ignored open interest and got burned holding illiquid calls I couldn’t sell.
Open interest tells you how many contracts are still active. It’s like volume, but for existing positions rather than daily trades.
Learned this the hard way when I got stuck with worthless options nobody wanted to buy.
Open interest shows how many people are committed to a position. New positions increase it, closed positions decrease it.
For trading, you care about liquidity. Decent open interest means faster fills and tighter spreads. Stay away from anything under 100 contracts - you’ll get stuck when you want out.
Always check this before trading, especially on strikes far from the money. It updates daily, so combine it with volume to find liquid options.
This habit’s saved me tons of headaches by avoiding dead contracts.
Open interest indicates active option contracts.
Monitor open interest to avoid illiquid options.