Open Interest
The total number of option contracts currently outstanding at a given strike.
Also called: oi
Written by Javier Sánchez Ros
In plain language
Open interest counts contracts that exist and have not been closed or expired. It is distinct from volume, which counts contracts traded today.
Rising open interest with rising volume means new positions are being opened. Falling open interest means positions are being closed out.
Strikes with high open interest tend to have tighter spreads and better liquidity, which materially affects your fill quality.
Worked through
Two strikes, and the cost of exiting each
- Strike A open interest
- 4,200 — spread $0.05
- Strike B open interest
- 18 — spread $0.65
- Round trip on A
- $10 per contract
- Round trip on B
- $130 per contract
Open interest counts the contracts currently outstanding at that strike, which is a direct read on whether anyone else is trading it. Four thousand means a functioning market; eighteen means you are likely to be the only participant when you want out.
The cost shows up in the spread, and on options it is brutal. Sixty-five cents is $65 per contract each way, so entering and exiting Strike B costs $130 before the trade has done anything — frequently more than the profit the trade was aiming for.
The failure is on the exit rather than the entry, which is why it surprises people. Getting in is optional and can be worked with a limit order; getting out of a position that is going wrong is not optional, and a thin strike will make you pay for the urgency.
The rule that follows is to trade where the volume already is: near-the-money strikes, standard monthly expirations, liquid underlyings. A slightly less perfect strike with a real market beats an ideal one nobody else is trading.
Why it matters
Low open interest means wide spreads and difficulty exiting. On options, a bad exit fill can consume a large share of the intended profit.
Common mistakes
- Trading illiquid strikes and losing a significant portion of the edge to spread.
- Confusing open interest with volume when assessing activity.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
How easily an asset can be bought or sold without moving its price.
The gap between the bid and the ask — the built-in cost of entering a trade.
The number of shares, contracts or units traded during a period.
The price at which an option contract can be exercised.
The price paid for an options contract.