What does "open interest" refer to when discussing some asset trading in some market?

Question

What does "open interest" refer to when discussing some asset trading in some market?

Answer 1

"Open interest" is the amount of that asset is available to be bought or sold.  In options it is the number of contracts that are available for that option.

Open interest doesn't really apply to stocks.  Because if you are willing to buy (or sell)  for what the other party wants, the open interest would equal the float.

Answer 2

"Open interest" refers to the number of contracts that exist for a derivative, such as an option. It has nothing to do with "the number of contracts that are available for that option" since new contracts can be created at any time.

For example, assume a new option is created.

In the first trade of that option Ann writes 5 contracts which Betty buys. That trade created five contracts so open interest is now 5.

In the second trade Candy writes 7 contracts that Della buys. Open interest is now 12 contracts.

In the third trade Elfaba writes 5 contracts which Ann buys. Since Ann was "buying to close" and Elfaba was "selling to open" the number of contracts in existence did not change and open interest remains at 12 contracts.

In the fourth trade Elfaba buys 5 contracts from Della. Since both Della and Elfaba were closing positions, the number of contracts in existence decreases by five, reducing open interest to 7 contracts.

Summary:

Open interest goes up when a conract is traded and both parties are opening a position.

Open interest remains the same when a contract is traded with one party opening a position and the other closing a position.

Open interest goes down whne a contract is traded and both parties are closing a position.

Open interest also goes down when an option is exercised.

By the way, if that answer made no sense because you have no idea what an option contract is, you can learn what one is by taking the free "Options Overview" tutorial at

http://www.cboe.com/LearnCenter/Tutorial...

Finally, I will warn you that the open interest figure reported is only updated between trading sessions, so intraday changes to open interest will not be reflected in the total displayed while the market is open.