Open Interest

Open interest is a measure of the number of options or futures contracts that have not been settled. It is a key indicator of market liquidity and interest.

Definition:

Open interest is the total number of outstanding options or futures contracts that have not been exercised or settled. It represents the number of contracts that are “open” or have not yet been closed out.

Importance:

• Market Liquidity: Open interest is an important measure of market liquidity. High open interest indicates that there is a lot of interest in the market for a particular contract, making it easier to trade.
• Contract Volatility: Open interest can also influence contract volatility. Contracts with high open interest tend to be more volatile than contracts with low open interest.
• Expiration Date: Open interest is used to track the expiration date of a contract. The open interest decreases as contracts expire.
• Delta: Delta, which measures the change in the price of an option with respect to a change in the underlying asset price, is influenced by open interest.

Formula:

Open Interest (OI) = Number of outstanding options or futures contracts

Example:

If there are 10,000 calls and 5,000 puts for a particular stock option, the open interest would be 10,000 + 5,000 = 15,000 contracts.

Additional Notes:

• Open interest is typically measured in contracts.
• Open interest can be used for both options and futures contracts.
• Open interest is a dynamic number that changes over time.
• Open interest can be used to gauge overall market sentiment and liquidity.