Option Contract Open Interest vs. Volume

Option Open Interest vs. Volume

Option volume and open interest are used simultaneously by traders to gauge the liquidity and activity of option contracts. They are often confused for one another because they both measure the amount of contracts traded, but one measures the trade activity in a given period, while other measures the open, unsettled contracts. 

Volume is what traders focus on through the day to gauge how much activity the specific contract has. This metric is updated throughout the trading day and each transaction, buy or sell, is counted in the volume. Volume is especially helpful when day trading because the higher activity contracts can provide price targets depending on their strike for the trader. 

Open interest is the metric traders use to analyze which contracts are still active and unsettled. This number reflects both long and short open contracts and is updated just once per day. Traders try to find option chains that’s clearly favoring one side (Call vs put) to gauge the market direction and sentiment. If there is a high level of open interest on the call and side and nearly no open interest on the put side, especially on deep in them contracts, then the market sentiment is leaning bullish.