Concept
Open Interest
Open interest is the number of derivative contracts currently outstanding — positions opened and not yet closed. It counts contracts in existence, not contracts traded.
How to read it
- Open interest rises when a new buyer and a new seller create a contract, falls when both sides close, and is unchanged when a position simply transfers between participants.
- Volume counts transactions during a period; open interest counts positions still standing at the end of it. Heavy volume with flat open interest means positions changed hands rather than accumulated.
- It resets each expiry cycle, since contracts cease to exist at expiry.
What it does not tell you
- The widely reproduced table — price up with OI up means long buildup, price up with OI down means short covering, and so on — assumes you know which side initiated. The data does not show that.
- Every contract has a buyer and a seller. Describing a rise in open interest as "longs building" chooses one side of a symmetric fact.
- Open interest is reported per contract and per strike, so aggregates depend on how they are assembled and can mislead across expiries.
Frequently asked questions
What is the difference between open interest and volume?
Volume counts how many contracts traded during a period. Open interest counts how many remain outstanding at the end of it. High volume with unchanged open interest means positions were transferred rather than created.
Does rising open interest mean the price will rise?
No. It means more contracts are outstanding, and every one of them has a buyer and a seller. The direction it is associated with is an interpretation, not something the number contains.
What does open interest tell you about a strike?
How many contracts are outstanding at that strike. Large concentrations are frequently discussed as significant levels, though the mechanism by which they would influence price is contested.
Why does open interest drop to zero at expiry?
Because the contracts stop existing. Every outstanding position is settled at expiry, so the cycle begins again with the next contract.
Related
- Put-Call Ratio (PCR) — Concept
- Max Pain — Concept
- Volume Profile — Concept
Educational use only
This page is educational material about how a technical tool is calculated and read. It is not investment advice, not a recommendation to buy or sell anything, and not a signal service. No indicator predicts future prices. CernoQuant is a trading journal and analytics platform, not a SEBI-registered investment adviser. Trading decisions and their outcomes are yours alone.
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