What is open interest in options trading

Open Interest - Explanation & Meaning

Open Interest - Definition

In order for an options contract to be opened, a buyer and a seller are required. The seller offers the contract on the market and needs a buyer who accepts this contract. As long as the buyer of an option does not exercise this option or closes the position, the respective option contract is deemed to be open (open) considered.

The sum of the open contracts is shown with the open interest. If both a buyer and a seller create a new open position on the same underlying, the number of outstanding contracts increases by one. If a buyer and seller close their position consisting of an options contract, the open interest decreases. If only one party, i.e. the buyer or seller, closes the position, this key figure remains unchanged.

example

On a new trading day, an options trader sells 10 options contracts on share A. Whether this is a call or a put is irrelevant for the open interest. He thus takes a short position. The buyers of the 10 contracts take the long position. At the moment these new positions are opened, the open interest increases by 10. If 5 contracts are now bought by the options trader with the short position and 5 contracts are also sold by the owner of the long position, the number of open contracts is reduced and thus the open interest therefore by 5.