How to Interpret Options Volume and Open Interest

In the options market, data is power. Beyond price and the Greeks, two often-overlooked metrics—options volume and open interest—provide powerful insights into market sentiment, liquidity, and trading opportunity.

For the aspiring self-sufficient trader who wants to escape the rat race and attain financial freedom, mastering these tools isn’t optional—it’s essential.

In this article, you’ll learn:

• What options volume and open interest are
• How they differ—and why they complement each other
• How they affect liquidity, execution, and sentiment
• How to use them to validate your trade setups
• Case studies and examples
• What these metrics tell us about smart money moves
• How to avoid common mistakes

📘 Section 1: What Are Volume and Open Interest?

🔹 Volume: Measuring Daily Activity

Volume is the number of contracts traded in a given day. Every time a buyer and seller agree to a trade—volume increases by one.

• Volume resets every trading day.
• Includes newly opened positions and closed ones.
• High volume = more activity = tighter spreads and faster execution.

Example:
If 12,000 SPY 440 calls change hands on Monday, volume = 12,000.

Think of volume as a pulse check for option activity today.

🔸 Open Interest: Tracking Commitment

Open Interest (OI) measures the number of outstanding contracts that are still open—not yet closed or settled.

• Open interest accumulates over time.
• It increases when traders open new contracts.
• It decreases when trades are closed or expire.

Example:
If there are 40,000 open positions in QQQ 360 puts, then OI = 40,000. That shows traders have open exposure at that level.

Open interest gives you a bigger picture view of how much capital and conviction exists in a position.

🧠 Section 2: Why These Metrics Matter

You may ask, "Isn’t price action enough?" Not quite.

Volume and open interest help you:

• Avoid illiquid trades
• Gauge sentiment and institutional flow
• Plan entries and exits
• Choose the best strike price and expiration
• Identify significant support/resistance zones

2.1 Liquidity

High volume and open interest lead to:

• Tighter bid-ask spreads
• Better fills
• Lower slippage
• Easier exits—especially for multi-leg trades

This is crucial for traders who scale in/out or manage spreads, condors, or calendars.

2.2 Market Sentiment

Are traders positioning for a breakout? Hedging? Taking profits?

Volume and open interest—in context with price action—can reveal the psychology of the market.

• Volume up, OI up = new positions
• Volume up, OI down = closing positions
• Low volume, high OI = stale trade

This tells you if the market is adding to a bet or backing off.

2.3 Confirmation of Price Moves

A breakout supported by:

• High volume
• Rising OI …is more trustworthy than price action alone.

Without volume, price moves can be low-conviction and susceptible to failure.

📊 Section 3: How to Read Volume & Open Interest

Let’s break this into visual and practical terms.

3.1 Example Options Chain

Strike	Volume	OI	Spread
390	1,200	5,500	$0.03
395	3,800	9,400	$0.02
400	14,500	21,000	$0.01
405	200	320	$0.15

Conclusion:

• 400 strike is most liquid
• 405 is illiquid (avoid)
• 395 is decent backup

You want to be where volume + OI are highest and spreads are tightest.

3.2 Volume vs. Open Interest Visual

[Bar chart suggestion for visual aid]

A graph showing:

• Strike prices on the X-axis
• Volume (blue bars)
• Open interest (orange bars)

Spikes in volume above average OI = potentially unusual activity

🎯 Section 4: Using Volume & OI in Your Trading Strategy

Let’s move from analysis to application.

4.1 Confirming Setup Direction

You're bullish on AAPL. Should you go long?

Check:

• Are call volumes rising?
• Is OI building at OTM strikes?
• Is IV rising?

If yes—the market agrees with your thesis.

4.2 Choosing the Right Strike

Compare:

• Open interest
• Daily volume
• Bid/ask spread

Avoid low-OI options with wide spreads—even if they’re cheaper. Liquidity trumps price for execution and exit flexibility.

4.3 Avoiding Crowded Exits

OI = crowd size.
Volume = crowd activity.

A high-OI option with a big intraday volume drop might be signaling mass exits.

Avoid getting caught in low-volume/high-OI trades when sentiment shifts. They become exit traps.

4.4 Planning Trade Duration

• If open interest is concentrated in short-term expiries, traders may be scalping or hedging.
• If OI is high in longer-dated options, it may reflect institutional positioning or portfolio hedging.

This can guide your own strategy selection:

• Trade with the crowd for quick moves
• Or go contrarian in low-OI areas (carefully)

🧪 Section 5: Real-World Examples

Let’s walk through three case studies to make this practical.

📌 Case Study 1: SPY Breakout

• SPY is trading at $400
• 405 calls (next week expiry):
• Volume: 18,000
• OI: 5,000 (rising daily)

Outcome:
SPY breaks above 402 with strong momentum. Those calls surge. Traders using volume/OI to validate the breakout profited handsomely.

📌 Case Study 2: AAPL Fakeout

• AAPL climbs to $195
• Traders pile into 200 calls (volume = 20,000)
• OI doesn’t budge

Outcome:
Stock stalls. Calls drop. Volume spike = exit flows—not new bullish bets.

Lesson:
Volume without increasing OI = weak conviction

📌 Case Study 3: QQQ Support Hold

• QQQ drops to 355
• Volume spikes on 350 puts
• OI climbs over 3 sessions

Outcome:
QQQ bounces as put buyers get defensive.

Lesson:
Rising put volume + OI = hedging demand—signals support zone interest.

🧱 Section 6: Common Mistakes to Avoid

❌ Mistake 1: Treating All Volume as Bullish

Just because call volume is high doesn’t mean traders are buying.

• Could be call writing (neutral/bearish)
• Look at price movement, IV, and OI

❌ Mistake 2: Ignoring Bid/Ask Spread

An option might have volume—but still be illiquid.

If spread > 10% of the premium, skip it.

❌ Mistake 3: Not Watching OI Changes Over Time

Volume is a snapshot. OI is a trend.

Track OI changes daily to spot building or unwinding positions.

❌ Mistake 4: Jumping on Low-OI 0DTE Plays

Tempting for high return, but risky. Exit execution is often poor.

Stick to liquid weekly contracts unless you’re a scalping pro.

🔗 Section 7: How to Combine Volume/OI with Other Tools

For deeper analysis, pair these metrics with:

🔹 Implied Volatility

• Rising volume + OI + IV = breakout potential
• Rising volume + falling IV = hedging or closing

🔹 Price Action & Support/Resistance

• Check if volume/OI clusters around key price zones
• These act as psychological support/resistance

🔹 Greeks

• High delta + high volume = directional plays
• High vega + low OI = long vol bets

📚 Section 8: Learning Resources and SEO Backlinks

• Options Greeks Explained Simply
• Options Chain Analysis for Beginners
• Iron Condors: Strategy for Neutral Markets

These articles expand on concepts referenced above.

1. Bar Chart – Strike vs. Volume & OI

1. Line Chart – OI trend over 5 trading days

1. Heat Map – Where options interest is clustering across expirations

🎯 Your Next Step: Become a Data-Driven Trader

Volume and open interest give you the x-ray vision behind the market. You can spot crowd behavior, institutional movement, and strategic intent—if you know how to read it.

And when paired with strong technicals and the right strategies, you gain confidence, clarity, and consistency.

That’s how you become self-sufficient—and eventually, financially free.

🚀 Ready to Upgrade Your Options Strategy?

At www.optionstranglers.com.sg, we offer:

• 💬 In-depth live 1-1 sessions / group classes
• 📊 Trade examples and breakdowns
• 🤝 Community mentorship and support

👉 Ready to upgrade your strategy and trade like a pro?
Visit www.optionstranglers.com.sg and start your journey to financial freedom today.
Your future is an option. Choose wisely.

⚠️ Disclaimer:

Options involve risk and are not suitable for all investors. Always consult with a financial advisor before investing.