Open interest tells you how many options contracts are currently held and outstanding. Comparing today's flow to tomorrow's open interest is the single best way to tell whether a big trade was a real new position or just noise.
Volume vs. open interest — the distinction that matters most
These two numbers are constantly confused, so let's be precise:
- Volume counts how many contracts traded during the day. It resets to zero every morning. The same contract can be bought and sold many times in a day, inflating volume.
- Open interest (OI) counts how many contracts are still open — positions created and not yet closed. It updates once per day, overnight, after the exchanges reconcile.
Think of volume as "how much changed hands today" and open interest as "how many positions exist right now."
How open interest moves
Every options trade has a buyer and a seller, and each side is either opening a new position or closing an existing one. That gives four combinations:
- Buyer opens + Seller opens → open interest rises (a brand-new contract is created).
- Buyer closes + Seller closes → open interest falls (an existing contract is extinguished).
- One opens, one closes → open interest unchanged (the position is transferred to a new holder).
So open interest only increases when new positions are genuinely being created.
Why next-day OI is the confirmation step
Here's the problem flow tools alone can't solve: during the day, you can see a huge call print, but you cannot yet know whether it opened a new position or simply closed or transferred an existing one. The intraday tape doesn't tell you.
The answer arrives the next morning. If you saw $1.2M of call volume at the $50 strike today, and tomorrow's open interest at that strike jumps by roughly the number of contracts traded, that confirms the trade opened a new position — someone built real exposure. If open interest barely moves, much of that "flow" was intraday churn, closing trades, or rolling — not a new directional bet.
This is the core of our process. A loud print that doesn't show up in next-day open interest is, to us, unconfirmed — and we pass on it. Confirmation separates positioning from noise.
A quick worked example
- Today: 9,000 contracts trade on the ABC $50 calls. Prior open interest was 4,000.
- Tomorrow, scenario A: open interest is now ~12,500. The increase (~8,500) is close to today's volume → the activity was largely opening. Confirmed.
- Tomorrow, scenario B: open interest is now ~4,200. Barely changed despite 9,000 traded → mostly churn or closing. Not confirmed; we move on.
Limits to keep in mind
Open interest confirms that a position was opened — it does not tell you the holder's intent (it could still be a hedge), and it doesn't guarantee the trade will be profitable. It raises the quality of the evidence; it doesn't remove risk.
For research and educational purposes only. Not investment advice.