What can high open interest rate indicate about options?

Short Answer

Open Interest or OI is a parameter to measure the number of Outstanding contracts (Not Squared off) at a particular strike price. The near strike prices to the Spot has higher Open interest compares to OTM (Out of The Money) contracts. Higher OI has many benefits like High liquidity and low spreads and some disadvantages.

Detailed Answer

What is Open Interest?

Open Interest or (OI) simply denotes the current open option positions or the current option contracts that are outstanding at a particular Strike Price. To simplify this further, when an Options seller sells 1 option contract, someone else buys it. This is known as an option transaction between a seller and a buyer. This can be also denoted as 1 Open Interest as long as the Seller doesn't square off his position.

The buyer of the Option can sell that contract to a different person creating liquidity. In this way, Open interest is also considered as a factor of liquidity.

What can Open Interest indicates about Options Prices?

OI or the Open Interest is an important parameter that tells you the liquidity or the buying and selling action on a particular Strike Price. A high Open interest ensures that the ‘spread’ between the buyers and sellers will be minimum. Spread denotes the price difference between the buyer and the seller. A high spread will ultimately erode one's profitability to some extent.

Let’s see this with an Example

Assume Nifty is trading at 15500 currently, which makes the 15000 CE (Call Option) an ATM (At The Money) option. The open interest of an ATM is high compared to an OTM (Out of The Money) Call. Due to this the spread in the 15000 CE will be as minimum as 0.05 points which translates to 3.75 rupees per Lot (0.05 X 75).

On the other hand, if you were to transact in a far OTM Call, for example, 16000 CE. There the OI will be less than half of that of an ATM strike price. Due to this, the spread can be as high as 0.10 to 0.20 points per lot. This means the person squaring off their positions will be losing almost 7.5 to 15 rupees per Lot.

A high OI also denotes the active participation by Buyers and sellers at that particular price point. This can cause high volatility in option prices. This means that prices of options contracts can rise and fall quickly due to excessive amount of buying and selling. New traders should stay away from such situations as the risk increases as the volatility increases.


To conclude it is understood that Open interest is the amount of the outstanding (Not Squared) option contracts for a particular Strike price. The open interest denotes the buying and selling activity by Options traders. A high OI means that more traders are actively trading in that contract. This increases the volatility which can be risky for new investors, as well as risk-averse traders. On the other hand higher, OI also means more liquidity which ensures quick execution of trades.

Tagged With: Options TradingOpen InterestCall OptionPut OptionDerivatives
Categories: Option Trading
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Discussion (1)

    With a high open interest rate on options contracts, it's quite predictable that there are larger volumes in the trading options contracts. Moreover, the value of the options contract would be lower while trailing the closest index prices on that particular chart.

Related FAQs

What is Open Interest in Options Trading in Stock markets? Examples

Open Interest is a parameter used by technical analysts and options traders to judge the mood of the market. Open Interest is the total number of outstanding option contracts in a particular strike price of an underlying asset. The OI is an important factor as it defines liquidity and the total number of contracts that are traded at a particular point in time.

Is high open interest good or bad?

Open Interest is nothing but the total number of outstanding option contracts present at a particular point in time. Open Interest is beneficial and harmful in some cases. Open Interest is analyzed by analysts, traders, and investors to determine various aspects of the markets. These include trends, Support and resistance zones, etc. Find out the uses of OI and if a high Open interest is Good or Bad!

What is Call Option and Put Option?

Options are a form of conditional derivatives policy that allows the holder to buy or sell the key asset at a fixed price before or after the agreement expires. The two most impactful options are Call Options and Put Options.

Why is Options Trading considered risky?

Options trading is different from traditional share trading in many ways. Trading in options includes multiple factors like high leverage, delivery obligation on the date of expiry, unlimited loss potential, etc. All these factors make trading in options riskier.

What is Uncovered or Naked Options Trading?

Naked or Uncovered Option trading is a type of trading/speculating where a Call or Put option is bought or sold by different individuals at the same time expecting different price direction movements. Naked Option trading is a Zero-Sum game which means that the Profit for one is a Loss for the other individual.

Why is Options Trading more risky on the expiry day?

Options trading involves many factors such as Options Greeks. Options Greeks like Delta, Theta, and Gamma have the most impact on Option prices towards the end of the expiry. The option premiums are impacted highly by Gamma and Delta on the day of expiry. Learn more about Options greeks and how they impact option premiums.

Which is better, Quantsapp or Opstra for Open Interest Analysis?

Open Interest analysis is a major part when it comes to Options Trading. A good options trader analysis the Open Interest buildup and change to determine the market sentiment and general direction of the market. There are many platforms that offer the feature of OI analysis. Quantsapp and Opstra Definedge are two prominent participants in this field. Know which is better for you.

How much money is required for Options trading?

Options trading involves two aspects. One is options buying and the other is options selling. To buy an ATM option you will require around Rs 10,000 to Rs 25,000 per lot for an Index or stock option. On the other hand, you will require close to Rs 95,000 to Rs 1,50,000 for selling 1 lot of index option. These amounts change with respect to the time remaining to expiry and other market conditions.

Can I trade in US Options from India?

Yes, individuals can trade US options from India. There are many platforms as well which allows the individuals to trade internationally, it just depends on them what they are comfortable the most with and prefer trading from.

Are puts riskier than calls? Risks to Consider

Puts are Calls are both risky in their own terms. For calls it is necessary to make decisions well as there are chances that you make loose the premium. In case of puts it is important to strategize the the options well.