Open Interest (OI) is the number of contracts or open contracts outstanding.
For example, Person A can buy a Call from Person B or Person B can sell a Call to Person A. It doesn’t matter how you slice it, that transaction increases OI by 1.
In other words, OI is the number of contracts in existence, the number can go up, down, or remain the same. This is different from Volume which is the overall number of contracts traded per day. So if person A was to buy 2 Calls from Person B that would add +2 to our overall volume.
Volume can only go up because even if an option is opened then closed it counts as 2 tx’s which is +2 Volume. So if there is a good amount of OI and Volume on a certain strike we know that people are interested in that Option, subsequently this will give us a narrow bid/ask spread meaning a fair price.
It’s a simple and basic concept, a nice metric to look at when trying to find a bias. For example if OI and Volume is up on calls, maybe traders are bullish - check it out yourself!
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