Why Open Interest and Trading Volume Matter to Options Traders

Open interest in options, (Or Where Do Options Go When They Die?)

Updated Apr 22, Open Interest vs.

There will simply be as many option contracts as trader demand dictates. Remember: whenever you trade an option contract, you might be creating a brand-new position opening or liquidating an existing one closing.

Someone needs to look at the big picture and keep track of the overall number of outstanding option contracts in the marketplace. Simply put, open interest is the number of option contracts that exist for a particular stock.

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They can be tallied on as large a scale as all open contracts on a stock, or can be measured more specifically as option type call or put at a specific strike price with a specific expiration. Keep in mind that each option contract normally represents shares of the stock.

Why Open Interest and Trading Volume Matter to Options Traders

This brings up a point worth noting: although you can keep track of trading volume on any given option throughout the day, open interest is a lagging number: it's not updated during the course of a trading day.

Instead, it is officially posted by The OCC the morning after any given trading session, once the figures have been calculated.

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For the rest of the trading day the figure remains static. Why open interest matters to you As open interest in options can see from figure 1, open interest can vary from the call side to the put side, and from strike price to strike price.

High open interest for a given option contract means a lot of people are interested in that option.

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The main benefit of trading options with high open interest is that it tends to reflect greater liquidity for that contract. So there will be less of a price discrepancy between what someone wants to pay for an option and how much someone wants to sell it for.

By Emily Norris Updated Apr 13, Price movements in the options market are a reflection of decisions to buy or sell options made by millions of traders. But the price isn't the only number that a successful options trader keeps an eye on. Daily trading volume and open interest are two additional key numbers to watch when trading options.