Open Interest & Volume
How to measure activity and liquidity in an options contract.
Open interest is the total number of outstanding options contracts that have not been closed, exercised, or expired. Volume is the number of contracts traded during the current session. Together, they measure the activity level and liquidity of a specific option.
Why It Matters
Liquidity determines the quality of your execution. Options with high open interest and volume have tighter bid-ask spreads, meaning you pay less to enter and exit trades. Low open interest means wide spreads, poor fills, and higher effective costs.
Tracking open interest and volume also reveals where institutional and active traders are positioning. Unusual volume — when today's volume is many times the average — can signal that informed money is making a move. It doesn't tell you the direction, but it tells you someone is paying attention.
How It Works
Volume resets to zero every day. Each contract traded — whether opening or closing — counts as one unit of volume. If 5,000 contracts trade on a particular strike, the volume is 5,000. Volume tells you how active trading was today.
Open interest updates once per day, after the close. It reflects the net number of open positions. Here's how it changes:
- Buyer opens + Seller opens = Open interest increases by 1
- Buyer closes + Seller closes = Open interest decreases by 1
- Buyer opens + Existing holder closes = Open interest unchanged (a contract passes from one hand to another)
Think of open interest as the pool of outstanding contracts. Volume measures the flow in and out of that pool during a session.
When volume exceeds open interest on a given contract, it often means significant new positions are being created. This is what traders look for when scanning for unusual activity.
What to look for in practice:
- Minimum open interest of 100-500 contracts for decent liquidity
- Volume relative to open interest (high ratio = new activity)
- Consistent open interest across strikes = a well-traded name
Quick Example
You are looking at the AAPL $175 call expiring in two weeks. Open interest: 25,000. Today's volume: 8,500. The bid-ask spread is $0.02 wide. This is a highly liquid contract — you will get good fills and can exit easily.
Compare that to a small-cap stock's $30 call with open interest of 50 and today's volume of 3. The bid-ask spread is $0.40 wide. Entering this trade costs you $0.40 per share ($40 per contract) in spread alone.