Open Interest vs Volume

Open Interest

Open Interest represents the current number of contracts that are being held at each Strike Price.

Volume

Represents the current number of people that have purchased an option the same day.

The higher the number of Open Interest in a Strike represents:

A low liquidity, open interest and volume:

Means that there are less people to buy from or sell to
You will larger spreads (Bid vs Ask) which makes it harder to close your position at a specified price

Making Sense of Open Interest and Volume

Find Strikes where there are 500+, preferably 1000+, in Open Interest

- You can still trade where there is less open interest
- Less open interest impacts the price and whether you can open or close quickly
- Monthly options typically have a higher open interest and volume than weeklies

Watch or find screeners that show large increases in Volume over Open Interest

When there is a large spike of volume (new purchases) at a strike price, that means there is considerable interest in a move in that direction in the short term
If there is an equal amount of volume interest on both calls and puts this could just be a large interest in spreads

Call side Open Interest vs PUT side Open Interest

If you want to see the current sentiment of the market take a look at the Open Interest and Volume of the Strike Prices OTM
If there is a greater amount of positions OTM on the CALL side, instead of the PUT side, people believe that prices are likely to rise
If there is a greater amount of positions OTM on the PUT side, instead of the CALL side, people believe that prices are likely to decrease
This does not mean they are correct, but reflects what the market currently purchased
Check closer expirations vs farther out expirations to see true sentiments
As the adage goes, look to buy when everyone is selling and look to sell when everyone is buying.
- This does not mean to do the exact opposite
- It means to be cautious and ready for the market to change direction

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