Open interest shows the total number of open contracts in the options market. When open interest increases, it means more people are entering the market. When it decreases, it shows that people are closing their trades. This helps traders understand the strength of a trend. Rising open interest with price movement means the trend is strong. Falling open interest may show the trend is weakening. Watching open interest helps you know if a trend might continue or reverse.

What is Open Interest in Options?

Open interest is the number of option contracts that are still open and active. These contracts have not been closed, exercised, or expired. It helps traders know how much activity is happening in a particular option. If open interest is high, it means many people are trading that option. If it's low, there’s not much interest from traders.

Why Does Open Interest Change?

Open interest changes when new contracts are added or old contracts are closed. If two traders start a new trade, open interest increases. If both decide to exit the trade, open interest decreases. This change shows us how active and confident traders are in the market at that moment.

How Does It Help Traders?

Traders use open interest to check how strong a trend is. If prices are going up and open interest is also rising, it shows that more people believe in the upward move. If prices rise but open interest falls, the move might not last. It’s the same for a falling market. Watching this helps you make smarter trades.

What Do Rising and Falling Open Interest Mean?

If open interest is going up with price, it means new money is coming in and the trend is strong. If open interest is falling, traders may be losing interest or closing trades. This might mean the trend is ending. It’s important to see both price and open interest together to know the full picture.

Can Open Interest Predict Market Moves?

Open interest does not predict exact price moves, but it helps understand trader behavior. It shows whether traders are active or cautious. When used with price charts and volume, it gives good clues about what might happen next. It is a tool to help make better decisions, not a signal on its own.