What exactly is Open Interest, and what does it mean for my trading?

Open interest is the total number of outstanding derivative contracts, such as options or futures that have not been settled for an asset. The total open interest does not count, and total every buy and sell contract. Instead, open interest provides a more accurate picture of the options trading activity, and whether money flows into the futures and options market are increasing or decreasing.

The Importance of Open Interest
Open interest is a measure of market activity. Little or no open interest means there are no opening positions, or nearly all the positions have been closed. High open interest means there are many contracts still open, which means market participants will be watching that market closely.

Open Interest and Trend Strength
Open interest is also used as an indicator of trend strength. Since rising open interest represents additional money and interest coming into a market, it is generally interpreted to be an indication that the existing market trend is gaining momentum or is likely to continue.

Many technical analysts believe that knowledge of open interest can provide useful information about the market. For example, if there is a deceleration in open interest following a sustained move—either up or down—in price, then it might be foreshadowing an end to that trend.