Options Glossary

Glossary: Open Interest

Last Updated: July 12, 2015


Open Interest

What Does Open Interest Mean in Options Trading?

Open Interest indicates the number of all open options contract for the particular option. This is an important measure of liquidity as it indicates the overall active participation in the position. High open interest, or high participation, in the options contract gives the trader reasonable confidence that there will be a counterparty for closing or for adjusting the position over the contract life.
A new options contract is created when a buyer purchases a contract from a seller who does not already hold the options contract. Whenever an options trader or investor sell an options position that they do not already have in their portfolio, a new position is created both in their portfolio as well as on the options exchange and the open interest of the options position increases by 1. Selling back the option purchase or buying back the option contract written closes the position. When the position is closed, the Open Interest decreases by 1, removing it from the open interest.

How to Use In the Brutus Options Ranker

Open interest is a powerful criterion to add to your Brutus Options Ranker Strategy.  You will almost always want to maximize the criteria in your strategy to ensure you have a much liquidity as possible around the specific contract or spread you are looking to trade.

Special Considerations for Use with the Brutus Options Ranker

Since Open Interest is for a specific options contract, Brutus has a special way of handling open interest when ranking spread setup types (vs. individual contracts).  The spread liquidity is taken as the lowest open interest across all the contracts in the spread.  This is because all contracts would need to be closed to complete the position and therefore the limit to liquidity is potentially the contract with the lowest open interest.

Videos Explaining Open Interest 

We found these videos that explain the topic well.  
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