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What is the difference between option volume and open interest?

Like stocks, options contract volume displays that day’s activity, whereas open interest is thetotal number of contracts outstanding. Options traders must consider both volume and open interest because the two data points tell different stories. Option open interest increases when traders create new contracts that did not previously exist.

How do you use open interest?

One way to use open interest is to look at it relative to the volume of contracts traded. When the volume exceeds the existing open interest on a given day, it suggests that trading in that option was exceptionally high that day. Open interest also gives you key information regarding the liquidity of an option.

Why do we see a large volume of contracts & open interest?

This might explain why you might see a large volume of 10,000 contracts on the day but open interest of just 5,000. Well, that’s because some of the contracts that were traded must have been closed out before the end of the day.

What does volume mean for options?

For options, volume is simply the raw number of contracts that have changed hands on a particular day. This is irrelevant of whether a new contract was created or not. This might explain why you might see a large volume of 10,000 contracts on the day but open interest of just 5,000.

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