Question 1

What are options?

Accepted Answer

Options are a financial product that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a set price within a given time period. They are a contract between an investor and a broker which details the terms of the agreement. The price and timing of the option are determined by the buyer at the time of purchase.

Question 2

What is open interest?

Accepted Answer

Open interest refers to the value (or number) of options contracts that have been entered into but not yet closed. It is a good indicator of the level of activity in the options market. The greater the open interest, the more active the market. Open interest also provides a general sense of the market’s expectations for the underlying security.

Question 3

Is open interest enough to make a decision?

Accepted Answer

No, using just open interest to analyze the market is a bad move. On its own, it only tells you about the number of contracts that are in open positions. It does not give information about price movements or whether other trades are in a long or short position.

What is Open Interest?