Articles and Updates
September 2025
Open Interest: Why It Matters
Have you ever wondered why, in options trading, brokerage firms require each order to specify whether it is “to open” or “to close,” while this isn’t necessary for stock orders? The reason lies in the added complexity of options, both in execution and in clearing. The “open/close” designation plays several important roles, including processing trades, managing positions, and calculating open interest.
Open interest originates from trading activity but differs from volume. Although open interest and trading volume are statistically related, they measure different datasets- volume captures activity within a session, whereas open interest reflects the cumulative number of contracts still “open” or pending.
The OCC is responsible for calculating open interest. This process involves consolidating trade reports from the exchanges, which detail all opening and closing transactions for the day. In addition, the OCC accounts for options that were exercised and resulted in assignment, since those contracts are “closed” and eliminated from open interest.
Specifying whether an options order is “to open” or “to close” facilitates the process. These designations indicate whether a trader is creating a new position (to open) or unwinding an existing position (to close). These designations produce four specific types of option orders: buy to open, buy to close, sell to open, and sell to close.
For example:
Open interest serves as a valuable indicator of market depth and participation; it represents the collective number open option contracts still active. Examining the day-to-day rise and fall of open interest can produce clues and insights into trading activity.
To find open interest data visit www.theocc.com and access ‘series search for individual stocks' or a view of total open interest.
Open interest originates from trading activity but differs from volume. Although open interest and trading volume are statistically related, they measure different datasets- volume captures activity within a session, whereas open interest reflects the cumulative number of contracts still “open” or pending.
The OCC is responsible for calculating open interest. This process involves consolidating trade reports from the exchanges, which detail all opening and closing transactions for the day. In addition, the OCC accounts for options that were exercised and resulted in assignment, since those contracts are “closed” and eliminated from open interest.
Specifying whether an options order is “to open” or “to close” facilitates the process. These designations indicate whether a trader is creating a new position (to open) or unwinding an existing position (to close). These designations produce four specific types of option orders: buy to open, buy to close, sell to open, and sell to close.
For example:
- If Trader A buys to open 10 call options and Trader B sells to open those same 10 contracts, open interest increases by 10.
- Later, if Trader A sells to close those contracts and Trader B buys to close, open interest decreases by 10, returning open interest to zero.
- If, on the other hand, Trader A sells to close 10 call contracts and Trader C decides to buy to open 10 contracts, to establish a new position, effectively, Trader A’s open interest is transferred to Trader B resulting in open interest remaining the same at 10 contracts.
- Both sides 'to open' → Open Interest increases.
- Both sides 'to close' → Open Interest decreases.
- One side 'to open' & the other 'to close' → Open Interest remains unchanged
Open interest serves as a valuable indicator of market depth and participation; it represents the collective number open option contracts still active. Examining the day-to-day rise and fall of open interest can produce clues and insights into trading activity.
To find open interest data visit www.theocc.com and access ‘series search for individual stocks' or a view of total open interest.
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