Volume & Open Interest Explained | Options Trading Concepts

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[tastyliveshow]

7:46 **Sarah is already LONG 4 calls** is what I meant to say - sorry about this!

[MusicbyDuece]

one of the better videos I've seen about open int. vs volume well done

[masonpagano]

Was looking at volume and open interest right at the market open, and volume was super low for SPY. I instantly knew that I was focusing on the wrong thing. Found this video, and instantly cleared up my confusion. Thanks

[Tonnika]

Thank you so much for breaking options stats down. I've been searching and searching for this type of information. You don't how much your video has saved my butt. I really appreciate you. Also, how can I know the option volume and open interest before buying a contract?

[simranjeetsingh]

Thanx for such a good representation of concepts. Cheers Mike cheers 🎉

[samills]

finally someone on the interwebs that explains it correctly. well played. now good day sir... I said good day!! :)

[shiva_mfn]

Came across multiple videos but this one is a simple, well explained & presented...Very Nice!.

[brendonthomas]

Excellent explanation! I finally understand it :))))

[bhaskarkalyanaraman]

Is not call sale and put sale of same underlying is calculated separately and accounted for? Along with their respective volumes too? Since their calculation and difference between them will determine the trend direction of the stock. Pl clarify.

[ChaceBonanno]

Seems like open interest is the most accurate indication of liquidity

[markw]

I'd love to see a vid on buy to open/buy to close/sell to open/sell to close and the mechanics of those transactions explained in a similar way. For some reason, those concepts just don't "stick" in my head.

[ccc]

So if I understand correctly, open interest goes up when both parties are opening, goes down when both parties are closing but stays the same if one is opening and the other is closing. Hence, the name, open interest, because to create it you need two open sides.

So, kinda like a company issuing stocks, the float stays the same regardless of how much they are traded, unless the company buys them back.

[BT-ydkr]

Great video. Thanks! I learned from the comments and replies too. Question: Your example is referring to one type of option - eg. an AAPL200911C110.? Also, do I understand correctly that Volume refers to just one day, but OI can be/ is carried over from the previous day? Thank you! Hopefultrader

[jamateuss]

I have found lots of useful information in tastytrade, I've learnt a lot so far! Thank you for all of these resources ^^!
From all the videos I have watched until now, I get you choose the potential stocks from the S&P500 with Volume>1'000.000, Open Interest>1000 and Options Volume>1000 ( and Volatility criteria depending of the type spread). Is there any other criteria u consider to screen the stocks you may choose to trade? or do u always check a fixed number of stocks/ETFs to trade base on these criteria? is there any video about this topic(the picking list)? thank you :)

[Ploc]

subbed 12 seconds in bc of the led zep intro

[gmadgeholdings]

What do you mean you can't trade the underlying cash settled stocks like SPX? Unless I misunderstood, yes you can...but not the individual stocks.

[wesreal]

GREAT VIDEO. I WILL AD THIS TO MY GROUP..

[anujgaonkar]

Hi, how can we find out if open interest has increased or decreased from previous trading day ?

[CTT]

I would suggest you use the terms "buy to open", "buy to close", "sell to open", and "sell to close", instead of simply "buy" and "sell", because otherwise, your explanation will really confuse ppl, especially beginners. The following are my further explanations.

If a trader tries to buy (no matter to open or to close) a contract, then where is it from? Of course, from someone who tries to sell (again, no matter to open or to close). Indeed, there are four cases corresponding to different open interest (OI) changes.
1. a "Buy to Open" paired with "Sell to Open" gives a +1 change in OI (assuming trading for one contract, the same in the following)
2. a "Buy to Open" paired with "Sell to Close" gives a zero change in OI, bcs the increase from the buyer and the decrease from the seller in IO offset.
3. a "Buy to Close" paired with "Sell to Open" gives a zero change in OI, for the same reason as point 2.
4. a "Buy to Close" paired with "Sell to Close" gives a -1 change in OI.

Now, if we check the four examples you mentioned in the video (see from 4:04 to 8:50), your first two examples are in my case 1, your third example is in my case 4, and your last example is in my case 2.

Of course, in the real market, we will have many traders opening or closing many many contracts. A simple rule is that if the number of open contracts is more than that of closing contracts in one day, then the OI will increase (on that day); if less than, then decrease. And note that volume is reset to be zero at the market close every day (and recount from zero on the second day) while OI is a cumulative number updated every day before the market open (so during the trading hours it is static). Attentive traders may ask "How can the number of closing contracts be less than that of the open contracts? After all, you will have to open first and then close, indicating the number of open should be >= the number of closing". Well, this point is correct if we look throughout the lifespan of a ticker (e.g., AAPL220218C170), assuming at expiration all contracts are closed or exercised/assigned. However, don't forget that the OI is updated once every day. So in one day, it is very possible that the number of closing is more than that of opening, giving a declining OI on the second day before the market open.

It is important for a trader, especially a day trader, to consider the OI together with implied volatility (IV), volume, the "Greeks", and the stock price (change) before making a trading decision. Good luck!

[coachshyliseshaymariemotiv]

Thanks for great explanation totally get it now