In financial derivative markets, Open Interest (OI) measures the total number of outstanding option or futures contracts that are currently held by market participants and have not been settled, exercised, or offset by an opposing transaction.

Volume vs Open Interest: The Key Difference

Many beginners confuse trading volume with open interest. Here is the distinction:

  • Volume: The cumulative count of contracts transacted during a trading day. Volume resets to zero at the start of every session.
  • Open Interest: A running tally of total open positions currently existing in the market. Open interest changes only when new contracts are created or existing contracts are liquidated.
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How Open Interest Changes (Simplified Example)

Imagine three market participants: Trader A, Trader B, and Trader C.

  • Scenario 1: Trader A buys 1 new Call contract, and Trader B sells 1 new Call contract. Result: Open Interest increases by +1.
  • Scenario 2: Trader C buys 1 Call contract directly from Trader A (who sells their existing contract to close). Result: Open Interest remains unchanged (0 change).
  • Scenario 3: Trader C buys 1 Put contract from Trader B, and later both Trader C and B close their positions together. Result: Open Interest decreases by -1.

The 4 Quadrants of Open Interest Interpretation

  • Price UP + Open Interest UP = Long Buildup (Bullish Sentiment)
  • Price DOWN + Open Interest UP = Short Buildup (Bearish Sentiment)
  • Price UP + Open Interest DOWN = Short Covering (Bullish Bounce)
  • Price DOWN + Open Interest DOWN = Long Unwinding (Bearish Pullback)

Explore our visual tool: Open Interest Heatmap & Visualizer →