Open Interest also know as OI, is the total number of options and futures contracts that are not closed on a particular day. As you might be aware of volume in a particular stock in equity market, option trading involves the creation of a new option contract when a trade is placed. Open interest will tell you the total number of option contracts that are currently open.
How to calculate Open Interest
Each trade completed on the exchange has an impact upon the level of open interest for that day.
For example, if both parties to the trade are initiating a new position ( one new buyer and one new seller), open interest will increase by one contract.
If both traders are closing an existing or old position ( one old buyer and one old seller) open interest will decline by one contract.
The third and final possibility is one old trader passing off his position to a new trader ( one old buyer sells to one new buyer). In this case the open interest will not change.
Well simply put, Option Interest is used in Futures and options…as you might know F&O are contract based i.e a contract between a buyer and a seller for a specific period of time.
Open Interest, is nothing but the total number of contracts being actively traded for a particular script. It will keep going up as and when more people start participating… buying or selling contracts of a script.