09) Volume and Open Interest
In this lesson we’re going to take a look at 2 related yet distinct elements of the options chain, Volume and Open Interest.
Volume
The number shown under the “volume” column of the option chain represents the total number of option contracts for a given call or put contract that have changed hands on the current trading day.
If you personally bought and sold 10 contracts, you would create 20 volume. 10 volume for the buy + 10 volume for the sell.
Whenever possible, try to trade contracts that have a greater daily volume than the amount of contracts you wish to purchase. This usually makes for a better buy price and a better sell price.
At the start of each trading day, volume is reset to 0.
Open Interest
The number under the Open Interest column represents the total number of contracts being held by traders during the lifespan of a given option contract. Each time contracts are purchased and not liquidated the Open Interest total will increase.
If you were to buy 100 contracts today and not sell them, and then buy 100 additional contracts tomorrow and continue to hold them, you would increase the Open Interest by 200. (100 contracts + 100 contracts)
Always try to trade contracts with a good amount of Open Interest. I would recommend that the Open Interest be at least 10 times the amount of contracts you plan to purchase. So, if you’re buying 50 contracts, look for a contract with at least 500 Open Interest. It is likely that this will help you to have your buy or sell order filled faster and at a fair price.