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. Options Contract

    A contract that allows the holder to buy or sell an underlying ...
  2. Interest Rate Call Option

    An interest rate derivative in which the holder has the right ...
  3. Option

    A financial derivative that represents a contract sold by one ...
  4. Option Agreement

    An option agreement is a legal contract between two parties outlining ...
  5. Time Decay

    The ratio of the change in an option's price to the decrease ...
  6. Bond Option

    A bond option is an option contract in which the underlying asset ...
Related Articles
  1. Trading

    Options Trading Volume and Open Interest

    Learn how trading volume and open interest can give you an edge when trading options.
  2. Trading

    How to Trade Options on Government Bonds

    A look at trading options on debt instruments, like U.S. Treasury bonds and other government securities.
  3. Investing

    Bank of America Shares Seen Rising 8% Short Term

    Shares of BofA have outperformed the broader S&P 500 in 2018, up by nearly 2%.
  4. Investing

    What are Options Contracts?

    An explanation of options contracts, call options and put options.
  5. Investing

    3 Reasons to Use ETF Options Over Futures (SPY, QQQ)

    Learn about exchange-traded fund (ETF) options and index futures, and why it might be a better decision to use ETF options instead of futures.
  6. Trading

    Options Pricing

    Options are valued in a variety of different ways. Learn about how options are priced with this tutorial.
RELATED FAQS
  1. 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 >>
  2. What is the difference between options and futures?

    An option gives the buyer the right, but not the obligation to buy or sell a certain asset at a specific price at any time ... Read Answer >>
  3. Does the seller (the writer) of an option determine the details of the option contract?

    The quick answer is yes and no. It all depends on where the option is traded. An option contract is an agreement between ... Read Answer >>
  4. 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. Fibonacci Retracement

    A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going ...
  2. Ethereum

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

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  4. 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 ...
  5. 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 ...
  6. 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.
Trading Center