Options Glossary
Open interest is the total number of option contracts for a specific strike and expiration that are currently open, meaning they haven't yet been closed, exercised, or expired. It's one of the first things experienced traders check before entering an option, because it's a rough proxy for how easy that contract will be to get in and out of.
Every option contract has two sides: a buyer and a seller. When a new buyer and a new seller create a brand-new contract, open interest goes up by one. When both sides of an existing contract close their position, open interest goes down by one. If an existing contract just changes hands between traders, open interest stays the same. The number reported at the end of each trading day reflects all contracts still open across every account, not just yours.
Open interest and volume are easy to mix up, but they measure different things. Volume counts how many contracts traded today, reset to zero every session. Open interest counts how many contracts are currently outstanding, carried forward day to day. A contract can trade heavily today (high volume) while still having low open interest if most of that volume closed out existing positions rather than opening new ones, and the reverse is just as common.
Low open interest usually means fewer market participants are willing to trade that exact strike and expiration, which tends to show up as a wider bid-ask spread and more price impact when you place an order. High open interest doesn't guarantee a tight spread, but it's generally a sign there's a deeper pool of contracts and counterparties, which makes it easier to enter and exit at a fair price.
Open interest shows up in a few practical decisions: sizing a position so it doesn't represent an outsized share of the contracts available, avoiding strikes so thin that a single order could move the price against you, and reading rising or falling open interest at a strike as a sign of where other traders are building or unwinding positions. It's a supporting data point, not a signal on its own, and it's usually checked alongside volume and the bid-ask spread rather than in isolation.