What is Open Interest?
Open interest (OI) is the total number of outstanding option contracts that have not been closed or exercised. It tells you where positions live, not where they are being entered today.
Definition
Open interest is the cumulative number of options contracts that are currently open — created by a buyer-and-seller and not yet closed by an offsetting trade or expiry. It differs from volume (today's activity) in being a stock variable rather than a flow variable: high OI at a strike means people are holding positions there, regardless of whether anything traded today. OI by strike-and-expiry is the structural map of the options market: the strikes with the most OI are where dealer hedging concentrates, where pinning effects emerge, and where structural skew supply sits. OI changes day-over-day tell you the net of new positions versus closures: rising OI with volume = position-building; flat OI with volume = position-rolling or day-trading.
Why it matters & how it's calculated
OI is computed once per day, post-close, by the clearing house. Several technical points matter on a desk. First, OI does not distinguish long from short: an OI of 10,000 at a strike could be 10,000 long held by one institution against 10,000 short held by a dealer (typical), or split 50/50 across many holders. The positioning assumption is what turns OI into a hedging-flow forecast. Second, OI changes drift through the day in unpublished form — many platforms only show end-of-day OI, but flow data combined with volume tagging can estimate intraday OI delta with reasonable accuracy. Third, expiring OI matters a lot for opex weeks: the rolling-down of OI from one expiry to the next produces predictable hedging flows. The "max pain" theory — that prices gravitate toward the strike where the maximum aggregate OI value would expire worthless — is folklore-grade evidence, but the underlying mechanism (dealer hedging into high-OI strikes pulls spot toward them) is real and shows up cleanly in opex-week data.
Worked example
SPX 5,000 strike for the next monthly expiry has 250,000 OI in calls vs 180,000 in puts. The gamma profile of dealer hedging is concentrated at 5,000. Going into expiration, dealer hedging tends to pin spot in a tight range around 5,000 — small moves trigger mean-reverting hedges. If spot is already at 5,000 with 2 days to go, expect a tight range with vol crushing into the close. If spot is 50 points away, expect dealer hedging to be neutral on the pin, and other factors dominate.
Related concepts
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