What is Open Interest and Why It Moves Price

What is Open Interest?

Open interest (OI) is the total number of outstanding options contracts that haven't been closed or exercised. When a buyer and seller create a new contract, open interest increases by one. When an existing holder closes their position, it decreases by one.

This is different from volume. Volume counts every transaction in a day — a contract can be traded 10 times and add 10 to volume, but open interest only changes when new contracts are created or old ones are removed.

Think of it this way: volume tells you how active trading was today. Open interest tells you how many positions are still open and need to be managed.

Why Open Interest Matters More Than You Think

Every open options contract has two sides: a buyer and a seller. In most cases, the seller is a market maker — and market makers are required to hedge their exposure.

This is the key insight: large open interest at a specific strike means there are a lot of contracts that market makers need to hedge against. The more contracts, the more hedging. The more hedging, the more impact on the stock price.

A strike with 100,000 open contracts creates significantly more hedging pressure than a strike with 1,000 contracts. This is why round-number strikes ($500, $600, $700) often act as magnets or barriers — they tend to accumulate the most open interest.

Reading Open Interest for Market Structure

When analyzing open interest for market structure, you want to look at three things:

First, where is OI concentrated? Heavy call OI above the current price suggests a ceiling (call wall). Heavy put OI below suggests a floor (put wall).

Second, what's the put/call ratio at each strike? A strike dominated by puts will have different hedging dynamics than one dominated by calls. GammaLens calculates this for every strike in the chain.

Third, how is OI distributed across expirations? Near-term expirations have higher gamma (more hedging impact) than far-dated ones. This is why weekly and 0DTE options have an outsized influence on intraday price action despite having less total OI.

Open Interest vs Volume: When to Use Each

Volume is useful for spotting unusual activity — a sudden spike in volume at a strike can signal institutional positioning or a large trade. But volume alone doesn't tell you about the structural impact.

Open interest is what creates persistent structural pressure. A large volume day that adds to OI builds the wall higher. A large volume day that reduces OI weakens it.

In GammaLens, the Options Matrix shows you both — Call OI and Put OI at every strike — so you can see exactly where the structural weight sits. The Net OI column shows you the balance between call and put positioning at each level.