Letter to Editor

Your latest issue’s cover story on making money using options was well-articulated and meticulous. Can you throw some light on open interest and its importance in options trading?

- Disha Shah

Editor Responds: We appreciate your query and are pleased to hear that you found our cover story in the recent issue insightful. Open interest is the total number of outstanding contracts that are actively held by market participants and yet to be settled. Open interest is a measure of activity in the futures and options market. It provides key information regarding the liquidity of an option. Increasing open interest represents new or additional money coming into the market while decreasing open interest indicates money flowing out of the market. The higher the open interest, the better it is. Options traders often use open interest as an indicator to confirm trends and trend reversals. Hope this helps. Keep writing to us!