Loading the player...

What is 'Open Interest'

Open interest is the total number of open or outstanding (not closed or delivered) options and/or futures contracts that exist on a given day, delivered on a particular day.

Open interest is commonly associated with the futures and options markets, where the number of existing contracts changes from day to day – unlike the stock market, where the outstanding shares of a company's stock remain constant once a stock issue is completed. However, the term "open interest" is also sometimes used to refer to the number of buy market orders that exist before the stock market opens.

Open Interest

BREAKING DOWN 'Open Interest'

For every seller of a futures or option contract, there must also be a buyer of the contract. One seller and one buyer together create one contract. Therefore, the total open interest in the market for a specified futures or option market equals the total number of buyers or the total number of sellers, not the total of both added together.

Open interest of the futures and options markets is sometimes confused with trading volume, but the two terms refer to distinctly different measures. For example, on a day when one trader who already holds 10 option contracts sells those 10 option contracts to a new trader entering the market, the transfer of contracts does not create any change in the open interest figure for that particular option; no new option contracts have been added to the market. However, the sale of the 10 option contracts by the existing option holder to an option buyer does increase the trading volume figure for the day by 10 contracts. The open interest number only changes when a new buyer and seller enter the market, creating a new contract.

The Importance of Open Interest

Open interest is a measure of the flow of money into a futures or options market. Increasing open interest represents new or additional money coming into the market, while decreasing open interest indicates money flowing out of the market. An increase in open interest is typically interpreted as a bullish signal, while decreasing open interest figures are generally interpreted as a bearish sign.

Open interest is also used as a momentum indicator of trend strength. Since rising open interest represents additional money coming into a market, indicating increased interest in the market by investors, it is generally interpreted to be an indication that the existing market trend is gaining momentum and is likely to continue. Conversely, decreasing open interest reflects declining interest on the part of investors and waning momentum, indicating that the existing trend may soon be exhausted, leading to a trend change.

RELATED TERMS
  1. Seller

    A seller is an entity who writes an option contract and collects ...
  2. Exchange-Traded Option

    An exchanged-traded option is a standardized contract to either ...
  3. Options Contract

    A contract that allows the holder to buy or sell an underlying ...
  4. Interest Rate Options

    An interest rate option is a financial derivative allowing the ...
  5. Covered Writer

    Covered writers are investors that limit risk by owning the underlying ...
  6. Option

    A financial derivative that represents a contract sold by one ...
Related Articles
  1. Trading

    Intro to Open Interest in the Futures Market

    Applied primarily to the futures market, this indicator confirms trends and reversals.
  2. Trading

    Stock Futures vs. Stock Options

    A quick overview of how stock futures and stock options work and why you would pick one over the other depending on the strategy being used.
  3. Investing

    Using Open Interest To Find Bull/Bear Signals

    Volume should inform your use of this indicator in confirming trends and reversals.
  4. Trading

    Examples Of Exchange-Traded Derivatives

    We look at some of the most common exchange-traded derivatives.
  5. Trading

    Trading Options on Futures Contracts

    Futures contracts are available for all sorts of financial products, from equity indexes to precious metals. Trading options based on futures means buying call or put options based on the direction ...
  6. Investing

    What are Options Contracts?

    An explanation of options contracts, call options and put options.
  7. Trading

    Getting Acquainted With Options Trading

    Learn about trading stock options, including some basic options trading terminology.
RELATED FAQS
  1. What does high open interest tell you about an option?

    Learn about the open interest of options contracts and what a high and a low open interest indicate about the liquidity of ... Read Answer >>
  2. How Do I Measure Option Liquidity?

    There are a couple of ways to measure option liquidity: daily volume and open interest. Read Answer >>
  3. How can I profit from monitoring open interest?

    Find out more about open interest, what the open interest indicates about an option and its underlying asset and how to profit ... Read Answer >>
  4. How do the investment risks differ between options and futures?

    Learn what differences exist between futures and options contracts and how each can be used to hedge against investment risk ... Read Answer >>
  5. What's Required for a Stock to Trade as an Option?

    Learn the four criteria companies must meet before options on their stock can be traded. Read Answer >>
Hot Definitions
  1. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  2. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  3. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  4. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  5. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
  6. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
Trading Center