Open Interest

Volume is the number of contracts traded during the current session. Open interest is the number of contracts still outstanding after the day ends. A contract can trade multiple times in a single session, so the two metrics can diverge.

If 10,000 contracts trade and open interest rises by 4,000, new positions are being added. If 10,000 contracts trade and open interest falls by 4,000, traders are mostly closing positions. That distinction is why experienced options traders never look at volume without checking open interest.

High open interest can create liquidity and help reveal where traders expect a stock to matter most. Strikes with heavy call open interest can become resistance if market makers hedge dynamically. Strikes with heavy put open interest can become support for the same reason.

Open interest is also useful for evaluating execution quality. When open interest is tiny, bid-ask spreads often widen and slippage increases. A healthy open-interest profile does not guarantee a good trade, but it makes entering and exiting the trade cleaner.

One of the most powerful applications of open interest data is understanding how market maker delta-hedging activity can influence stock prices.

How market makers hedge: When a market maker sells call options, they are short gamma — their delta changes rapidly as the stock moves. To stay delta-neutral, they must buy stock as the price rises and sell stock as it falls. This activity is mechanical and flow-driven, not directional.

Gamma exposure (GEX): GEX aggregates the delta-hedging requirement across all option strikes weighted by open interest. When GEX is positive (more calls outstanding than puts), market makers are long gamma — they buy dips and sell rallies, creating a stabilizing effect. When GEX is negative (more puts than calls), market makers are short gamma — they sell dips and buy rallies, amplifying moves in both directions.

Strike pinning: As expiration approaches, open interest concentrated at a specific strike creates a gravitational pull. Market makers' delta-hedging flows tend to stabilize prices near that strike because any deviation requires hedging activity that brings prices back. This is why large-cap stocks like Apple or SPY often appear to "pin" near round-number strikes on expiration Fridays.

Using OI to find support and resistance levels: Strikes with unusually large open interest — especially where open interest has been building for weeks rather than days — can function as dynamic support or resistance levels. The “max pain” level (the strike where the maximum number of options expire worthless) is calculated entirely from open interest data and often predicts expiration-day price behavior.

Unusually large open interest at a specific strike — particularly when accompanied by high volume that preceded a news event — can indicate informed positioning by institutional traders or insiders.

Unusual OI patterns to watch: A strike showing 10x its normal open interest, opened in the days before a catalyst (earnings, FDA decision, M&A announcement), often indicates that someone with information is positioning for the event. The SEC monitors this activity for insider trading; retail traders monitor it for potential signals about upcoming catalysts.

Volume-to-OI ratio as freshness indicator: Dividing current-session volume by open interest tells you whether the activity is new or old. A volume-to-OI ratio above 0.5 means at least half the open interest changed hands today — fresh activity. A ratio below 0.05 means today's volume is just churning existing positions. When screening for unusual options activity, prioritize high-volume, high-volume-to-OI strikes over high-OI-only strikes.

Call skew in open interest: When significantly more call open interest exists at above-market strikes than put open interest at below-market strikes (controlling for distance from the money), it reflects bullish institutional positioning. The reverse pattern — heavy put OI relative to call OI — suggests hedging or directional bearish bets. Combining this skew with the overall put-call ratio gives a more nuanced read on market sentiment than either metric alone.