 There's a reason why Xtrades is currently the fastest growing application on the market for sharing financial ideas. With over $2.5 million paid in the last two years to contributors, users are flocking to see what trades the top traders on the leaderboard are sharing in real time. If you're looking to grow your reputation as a trader on the internet or discuss your trading ideas with other reputable investors, click the link below and get connected with the trading mentor today, completely free of charge. Hey everyone, this is Tiltory9 and I'm an analyst with Xtrades.net, arguably one of the largest stock and options trading communities online today. If you would like to join a community, please feel free to follow the link down below, gain access to our channel for a one week free trial and get to lots of resources, courses, content, as well as alerts to stocks and options, as well as forex, and last but not least bounce ideas off of our amazingly knowledgeable community. So before we dive right in, reminders that if you enjoy content like this and would like to see more videos, please consider dropping a like and subscribe, this greatly helps the algorithms find our channel and allows us to in turn continue to provide content like this for you guys. So today we're going to be talking about options volume and options open interest. So these terms are used to understand the environment of the options contracts you're trading. The assumption here though is that you already know what an options contract is. So if you haven't looked into those yet, please follow the links. We have lots of other videos that explain options basics 101, how to buy an options contract for what means and all that. Once you've watched those come back here, then we can talk about volume and open interest. For those of you who already understand what an options contract is, let's get right into things. So let's go with a couple definitions first. So in terms of volume, right, options volume is the measure of total numbers of contracts or shares that are traded within the day. So we're talking about an asset like stocks, that's just the number of shares that are traded. So if I sell 100 shares, that's a volume that goes up by 100. You buy 100 shares, volume goes up by 100. Okay, options contracts, this works the same way. But with stocks, there's no net effect on the overall number of shares available. So the float of shares out there stays the same. So when you look at the volume of stocks that are traded, it does tell you people's interest in buying and selling that stock, but it doesn't necessarily affect the inherent environment or risk or potential for gain. With options trading, however, volume works differently. Because with options, the volume dictates how many contracts there are. Because we can open, close and liquidate contracts, options are not the same as a float of shares. So volume is also what makes the price go up or down. So as people want to buy more options contracts, there may be options contracts that are opened, the open interest increases, which we'll get to a little bit later. But the volume increases and the price goes up because it's a valuable commodity that everyone wants to buy. The higher the volume, though, the more transactions on this specific contract, the higher the liquidity. So you may have heard the term liquidity before. Liquidity basically means that there is access to this contract. So higher liquidity means that it's easier to enter and exit because there's more people looking to buy and sell this commodity. Higher liquidity also means that the spread between bid and ask. So the bid is the offer that buyers offer up in order to buy the contract. And the ask, which is what the seller asks in terms of price to sell their contracts to. And when there's lots of volume, there's lots of interest, this bid ask spread. The price difference between these two will be a lot closer as numerous transactions will take place. OK, so here we're going to go back to our previous screen here, right? And let's take away these slides here and go back to our window. So a window here, you can see that I'm so Yahoo Finance. OK, so super easy to just Google Yahoo Finance and you can look up any ticket that you want. We're just here on the S&P 500. So spy, nothing crazy here. Now, lots of lots of little tabs here, but we're just going to go to the tap that says options, right? So we're going to go get the options contracts on this. So today is November 18th. We're just going to scroll forward to, let's say, the end of the next week. So let's just go December 1st. OK, so we're going to look at options contracts there. So these are the last traded dates on the left hand side. You can see the strikes here. This is far in the money. Last traded price, volume, open interest. So we're going to scroll down, scroll down, scroll down to in the buddy, right? Which looking for about 450, 451. So look at this right here, this column here, this is the volume. This is the open interest. So before we get into this, let's take a look at what open interest means. So we are back here and we are going to go and options and open interest. So open interest is something that is unique to only the options market. Open interest is a measure of the total number of open options contracts, but only of a particular strike, a particular expiration date. So that doesn't mean that all spy calls are up. If open interest is up, it just means on this particular contract. So let's just say we're playing a specific ticker like say Walmart or Starbucks or something like that, and they have earnings report coming out. Lots of people will look to buy slightly out of the money call options. So those that are just at the money and up might be something that is high open interest as people are looking to buy them. But that doesn't mean that something that is numerous strikes away far out of the money is going to be of a high open interest. Next, when new contracts are opened, open interest will increase. When contracts are closed, open interest will decrease. So this tells us that the flow of transactions seen in volume doesn't necessarily tell us what open interest will be, right? Because people could be buying, buying, buying, buying, buying. And volume will be high and open interest will be high. But people could also be selling, selling, selling, selling and then open interest will decrease. So knowing the volume and knowing the open interest of the specific options contract you're trading will tell you a lot about how to trade that asset. Generally speaking though, you should take into account that only options with over 500 open interest will have enough liquidity for you to enter and exit easily. If it's lower than that, it's highly recommended to not trade as your spread will be wide and you might open that position and be at a significant loss already. Let's go through some examples. So if the price of an asset is increasing, right? The price is going up and call contract open interest is also increasing. That seems to reason that we can assume that people are bullish. People are looking to buy. People think it's going to go up and so the open interest is going up, right? So this is a relatively straightforward example, but we're going to get into some more complicated ones just to show how this can differ. So that's the easy one. Let's look at the next one here. Next up, if the price of the asset is increasing, but the call contract open is decreasing, right? That simply might mean that people are not so bullish anymore. People are thinking it's a reversal. People are thinking that we're coming up on resistance and people are closing out their call contracts. So if you notice that volume is still pretty high, price is increasing, but contracts open interest is decreasing. That might be a good reason to exit your position if you're long. Moving on, we've got another one here. Let's see. So if the price of an asset is decreasing, so now the price is going down, but call contracts, open interest is also decreasing, right? What would that mean? Now, that could mean that call contracts are being liquidated, right? Because people aren't entering this position. This position is getting closed off. The only reason why people would close is if they're in profit or they're hitting a stop loss. So if price is decreasing, call options are certainly not hitting a take profit point. So that means that this is probably hitting some stops. We're running those stops and people are closing out their contracts. So this could mean a short term bearish move as people are hitting stops and we're sinking down. But as these call options get liquidated, we're also thinking that this might potentially be a reversal point. So that's kind of a few different ways that you can take a look at options volume and options open interest in order to help you discern whether you should enter, exit, or stay in a trade, okay? So again, thanks for tuning in. If you guys like these kinds of videos and content and want to hear more, please feel free to drop a like down below. And then we will try to get to those topics as soon as possible. Thanks for tuning in. There's a reason why Xtrades is currently the fastest growing application on the market for sharing financial ideas. With over $2.5 million paid in the last two years to contributors, users are flocking to see what trades the top traders on the leaderboard are sharing in real time. If you're looking to grow your reputation as a trader on the internet or discuss your trading ideas with other reputable investors, click the link below and get connected with the trading mentor today, completely free of charge.