Volume and Open Interest

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There will simply be as many option contracts as trader demand dictates. Someone needs to look at the big picture and keep track of the overall number of outstanding option contracts in the marketplace. Simply put, open interest is the number of option contracts that exist for a particular stock.

They can be tallied on as large a scale as all open contracts on a stock, or can be measured more specifically as option type call or put at a specific strike price with a specific expiration.

Keep in mind that each option contract normally represents shares of the stock. This brings option trading volume and open interest a point worth noting: Instead, it is officially posted by The OCC the morning after any given trading session, once the figures have been calculated. For the rest of the trading day the figure remains static. As you can see option trading volume and open interest figure 1, open interest can vary from the call side to the put side, and from strike price to option trading volume and open interest price.

High open interest for a given option contract means a lot of people are interested in that option. The main benefit of trading options with high open interest is that it tends to reflect greater liquidity for that contract. So there will be less of a price discrepancy between what someone wants to pay for an option and how much someone wants to sell it for.

Options involve risk and are not suitable for all investors. For more information, please review the Characteristics and Risks of Standardized Options brochure before you begin trading options. Option trading volume and open interest investors may lose the entire amount of their investment in a relatively short period of time. Multiple leg options strategies involve additional risksand may result in complex tax treatments.

Please consult a tax professional prior to implementing these strategies. Implied volatility represents the consensus of the marketplace as to the future level of stock price volatility or the probability of reaching a specific price point. The Greeks represent the consensus of the marketplace as to how the option will react to changes in certain variables associated with the pricing of an option contract. There is no guarantee that the forecasts of implied volatility or the Greeks will be correct.

Ally Invest provides self-directed investors with discount brokerage services, and does not make recommendations or offer investment, financial, legal or tax advice. System response and access times may vary due to market conditions, system performance, and other factors. Content, research, tools, and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy.

The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, are not guaranteed for accuracy or completeness, do not reflect actual investment results and are not guarantees of future results. All investments involve risk, losses may exceed the principal invested, and the past option trading volume and open interest of a security, industry, sector, market, or financial product does not guarantee future results or returns.

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