Options Interest vs. Volume Question?

Question

In the option chain, and this is just a question in general, if you see "options interest" at something high like 38,000 but the volume (for that day) is zero, does that likely mean if I try to buy that option it wont be filled, i.e. the interest exceeds the number of share holders willing to write options on their stock ? So in that case I shouldn't even try to purchase the option because there are thousands of people ahead of me (assuming I am only willing to pay a reasonable price) ?

A second question is this: Is it generally harder to get your options order filled than a stock order ? Do only 30-60 % of options orders get filled, whereas 80% of stock orders get filled ?

Answer 1

Option interst is the number of open but filled transactions outstanding. This is the number of unexcuted options contracts. Options markets are dealer markets, there does not need to be a counterparty available. If you are willing to pay a high enough price you can fill any order up to the OCC's contract limit, but if you have that much money you wouldn't be asking this question.

If you place a series of market orders for option contracts they will get filled, but the price will become large.

Answer 2

Open interest has nothing to do with the number of transactions outstanding. Open interest is the number of contracts that exist. Since the number of long contracts is always equal to the number of short contracts, it represents both the number of long contracts and the number of short contracts. Open interest increases when a trade takes place and both the buyer and the seller are opening new positions. Open interest decreases when a trade takes place and both the buyer and the seller are closing existing positions. If one party to the trade is opening a position and the other is closing a position the trade does not change open interest.

Here is an example I posted on a message board some time ago.

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“Open Interest” is the number of option contracts that exist. “Volume” is the number of option contracts traded.

To the best of my knowledge, every time open interest and volume are displayed along with current quotes for an option, the open interest figure represents the number of contracts that existed at the beginning of the trading day, while the volume figure represents the number of contracts traded during the day.

To see how these numbers change and are reported, let’s go through the first trades of a new option, January 25 calls for Wanda’s Hemp and Opium importers, symbol WHO ME.

On the first day the option is available, it will start with

Volume 0
Open interest 0.

At 10:30 that day Andy buys 25 contracts, sold buy Brenda:

Volume 25
Open interest: 25 (but still reported as 0 for the rest of the day).

At 2:00 that day Cathy buys 10 contracts, sold by Don.

Volume 35
Open interest 35 (but still reported as 0 for the rest of the day).

There are no other trades for the option that day.

The second day will start with

Volume 0
Open interest 35

At 11:00 Ed buys 20 contracts form Fran.

Volume 20
Open interest 55 (but still reported as 35 for the rest of the day.

At 1:30 Andy sells the 25 contracts he bought the previous day to George

Volume 45
Open interest 55 (but still reported as 35 for the rest of the day).

Open interest did not change because existing contracts were sold so no new contracts were created.

There are no other trades for the option that day.

The third day will start with

Volume 0
Open interest 55.

At 9:45 Cathy sells the 10 contracts she bought the day before to Fran.

Volume 10
Open interest 45 (but still reported as 55 for the rest of the day).

Since both the buy and the seller were closing positions, those contracts no longer exist and open interest is decreased by the number of contracts.

At 12:30 George informs his broker that that he wants to exercise the 25 contracts he owns. The actual exercise/assignment process does not take place until after the market has closed so this has no impact on volume or open interest for the day. However, the next day those contracts will no longer exist, so open interest will be decreased by 25 contracts the next day.

The fourth day will start with

Volume 0
Open interest 20.

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Assuming you use limit orders it is probably a little more difficult to get option orders filled than stock oorders filled simply because there is less liquidity for options. However, I think it is always worth trying.

One thing you should know is that at the exchange where your order is sent your order will be filled before a maket maker's order at the same price. That gives your order a definate advantage and increases the chances your order will be filled as long as you are willing to pay at least as much as the market makers.

If you put in a limit order to buy below the current bid quote, you have very little chance of getting the order filled unless the stock price changes.

Answer 3

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