We recommend reading this chapter on Varsity to learn more and understand the concepts in-depth.
Key takeaways from this chapter
- Open Interest (OI) is a number that tells you how many contracts are currently outstanding (open) in the market.
- OI increases when new contracts are added. OI decreases when contracts are squared off.
- OI does not change when contracts are transferred from one party to another.
- Unlike volumes, OI is continuous data.
- On a stand-alone basis, OI and Volume information does not convey information; hence it makes sense always to pair it with the price to understand the impact of their variation.
- Abnormally high OI indicates high leverage. Beware of such situations.