Open interest (OI) is the number of derivative contracts (futures or options) that are still open at a given moment. A contract is "open" from the moment a buyer and a seller create it until one of three things happens: both sides close it, it is passed from one trader to another who closes it, or it expires. Stocks have no open interest because shares never expire; only futures and options do.
In the Indian market you will see OI on every option chain for NIFTY, BANKNIFTY, SENSEX, F&O stocks and MCX commodities. It is one of the most watched numbers in F&O trading because it shows where traders have actually put their money, not just where they traded once and left.
How open interest goes up and down
Every trade in the futures and options market has a buyer and a seller. What happens to OI depends on whether each of them is opening a new position or closing an old one:
| Buyer | Seller | What happens to OI |
|---|---|---|
| Opens a new long | Opens a new short | OI goes up by the contracts traded |
| Opens a new long | Closes an old long | OI unchanged: the position just changed hands |
| Closes an old short | Opens a new short | OI unchanged: the position changed hands |
| Closes an old short | Closes an old long | OI goes down |
So OI grows only when fresh money comes in on both sides, and shrinks only when both sides leave. When one trader simply hands a position to another, OI stays the same even though a trade happened.
A worked example with NIFTY options
Take the NIFTY 25,500 call of the nearest weekly expiry, on a morning when NIFTY is around 25,250. Imagine it starts the day with 1,00,000 contracts open. (Exchanges and data pages may show OI in contracts or in units of the underlying; one contract is one lot, and lot sizes change, so check the current NIFTY lot size on NSE.)
- 09:20: Trader A buys 500 contracts to open a new position; Trader B sells 500 contracts to open a new short. OI rises to 1,00,500.
- 10:45: Trader C, who bought the call last week, sells 300 contracts to book profit. The buyer, Trader D, is opening a new long. The position moved from C to D. OI stays at 1,00,500.
- 14:10: Trader B buys back 200 of his short calls, and the seller is Trader A closing 200 of his longs. Both are leaving. OI falls to 1,00,300.
Volume for the day was 500 + 300 + 200 = 1,000 contracts, but OI only rose by 300. That gap between volume and OI is the difference between activity and commitment.
Open interest vs volume
Beginners often mix up the two, so here they are side by side:
- Volume is the number of contracts traded during the day. It resets to zero every morning. A contract bought and sold ten times counts ten times.
- Open interest is the number of contracts still open at the end. It carries over from one day to the next and only resets when the contract expires.
High volume with little change in OI means traders are mostly passing positions around (very common in intraday option trading). Rising OI on high volume means new positions are being built and held. Volume tells you how busy a strike is; OI tells you how much is riding on it.
A live example: open interest on the NIFTY chain
Here is the part of today's NIFTY option chain around the at-the-money strike, with call OI on the left and put OI on the right, in lakh contracts:
Look at where the bold numbers sit. The strike with the most call OI is usually above the current price and the strike with the most put OI is usually below it. That pattern comes from option sellers, who tend to sell out-of-the-money options, and it is the basis of reading support and resistance from open interest.
Totals across the whole chain are summarised here, with the put-call ratio and max pain worked out from the same open interest:
These figures move through the session as positions are opened and closed. The open interest analysis page records them every minute so you can see how they changed, not only where they are now.
Who holds the open interest?
OI does not tell you who is long and who is short, because every contract has both. But traders reason about it this way: in index options, most buyers are small traders who buy a few lots for a short time, while most of the steady open interest is held by option sellers (also called writers), who need large margins and tend to hold until expiry or until they are proved wrong. That is why a big pile of call OI at a strike is usually read as "sellers think the price will not go above here", and a pile of put OI as "sellers think it will not go below here".
This is a habit of interpretation, not a fact the exchange publishes. Some of that OI belongs to hedgers, arbitrageurs and buyers who will hold. NSE does publish a daily split of total positions by type of trader (foreign investors, domestic institutions, proprietary desks and clients), covered in FII positions in index futures and options.
Open interest in futures
Futures have OI too, and it is read alongside price. If NIFTY futures rise and OI rises, new buyers are coming in. If they rise while OI falls, short sellers are closing (short covering). The four combinations have names (long build-up, short build-up, short covering and long unwinding), explained in the open interest build-up guide. Near expiry, futures OI falls in the current month and rises in the next as traders roll positions forward, which is the subject of futures rollover.
How traders use open interest
- To judge liquidity. Strikes with large OI usually have tighter bid-ask spreads and more buyers and sellers, so orders fill closer to a fair price.
- To find levels. Strikes with the largest call and put OI are watched as likely resistance and support for the expiry.
- To read sentiment. The ratio of total put OI to call OI (the PCR) gives a rough sense of whether sellers lean bullish or bearish.
- To confirm a move. A breakout with fresh OI behind it is backed by new positions; one with falling OI may just be traders closing out.
Limits and common mistakes
- Thinking OI shows direction. It counts contracts; it does not say who is right. Price is needed to interpret it.
- Comparing OI across expiries or symbols. The nearest weekly expiry always carries far more OI than a far month, and NIFTY far more than a single stock. Compare a strike with its neighbours and with its own past.
- Reading OI too early in the day. In the first half hour OI can swing as overnight orders and hedges settle. Changes later in the session are usually more meaningful.
- Forgetting expiry. On expiry day OI collapses as contracts settle, so sharp drops then are mechanical, not a signal.
- Delays. OI is reported by the exchange with a short lag, so a few minutes' delay is normal on every platform.
Open interest is a map of where traders are committed. It is a starting point for questions, not an answer on where the price will go.