Open interest is the total number of futures or options contracts that are still active, meaning not yet squared off, expired, settled or exercised. It shows how many contracts remain open in the market, but on its own it does not tell you whether the market is bullish or bearish.
How does open interest change from one day to the next?
Open interest rises only when a fresh buyer and a fresh seller enter into a new contract together. That creates a contract that did not exist before. A futures contract is an agreement to buy or sell an asset at a set price on a future date, and an option gives its holder the right, but not the obligation, to do so.
Open interest falls when an existing buyer and an existing seller both close out their positions against each other. It stays the same when an existing position is simply handed from one trader to another, because no new contract is created.
Consider a hypothetical example with invented figures. Suppose a contract series starts the day with 10,000 open contracts. A fresh buyer and a fresh seller create 1,500 new contracts, taking the total to 11,500. Then 800 existing buyers and 800 existing sellers close out against each other, bringing it to 10,700. Finally, 300 contracts change hands from one holder to another with no new contract, so the total remains 10,700.
Every contract has a long side (the buyer) and a short side (the seller) of equal size. Open interest counts each contract once, so the 10,700 figure means 10,700 long positions and 10,700 short positions, not 21,400 positions in total.
How does price movement change what open interest means?
Open interest is read together with price. Rising prices with rising open interest is generally taken as long build-up, meaning new buyers are entering and bullish strength is building. Falling prices with rising open interest is generally read as short build-up, meaning fresh short sellers are entering and the market is bearish.
The other two combinations carry a warning. Rising prices with falling open interest usually signal short covering. Here, existing short sellers are buying back their positions to exit, rather than fresh buyers entering, so the rally may not last. Falling prices with falling open interest usually signal long unwinding, where existing long holders are exiting.
These are tendencies, not guarantees. A rise in open interest during a fall in price does not confirm that prices will keep falling, and the same is true of the other combinations.
What does open interest not tell you?
Trading volume and open interest are often confused. Volume counts the contracts traded in a session and resets to zero each day. Open interest carries forward from day to day until positions are closed. A day can have high volume with little change in open interest, if the same positions are simply being traded back and forth.
Open interest also does not reveal who the holders are, whether they are hedging an exposure or speculating, or what they paid. A high figure shows that many positions are open, not that most of them agree on direction.
Why do traders look at option-chain open interest?
An option chain lists the available option contracts at different strike prices, which are the fixed prices at which an option can be exercised. Traders look at how open interest is spread across these strikes. Concentrations of open interest at certain strikes are used to look for support and resistance zones, which are price levels where buying or selling pressure is thought to cluster.
This is a reading of positioning, not a forecast. Prices can move through a level with a large concentration of open interest, and the zones change as contracts are added, closed or expire.
Higher open interest generally means greater liquidity, which makes it easier to enter or exit trades at competitive bid and ask prices. The bid is the highest price a buyer is offering, and the ask is the lowest price a seller will accept. Liquidity is not guaranteed, though. It can thin out quickly during sharp moves, so a large open interest figure does not promise a smooth exit at a given price.
Sources and last check
Facts in this article were checked against the sources below on 1 November 2026. Rules and figures can change; check the primary source before acting.
- dhan.co (broker education)
- zerodha.com (broker education)
- upstox.com (broker education)
- groww.in (broker education)
- 5paisa.com (broker education)
- kotakneo.com (broker education)
This article is general information, not investment advice. MyFinanceBandhu is not a SEBI-registered investment adviser.
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