Open Interest is the total number of outstanding options contracts that have not been closed, exercised, or expired. For exposure analysis, open interest is the critical input—it tells us where dealers have positions and how much hedging pressure exists at each strike.

Why Open Interest Matters for Exposure

Volume tells you what traded today. Open interest tells you what positions exist. When calculating dealer exposure (GEX, VEX, CEX), we weight each strike's Greek by its open interest:

$\text{Exposure}_K = \text{Greek}_K \times OI_K \times 100$

Without open interest, we'd only see theoretical Greek values. With it, we see the actual hedging pressure dealers face.

Open Interest vs. Volume

Metric	What It Measures	Resets	Use Case
Volume	Contracts traded today	Daily	Intraday activity, flow detection
Open Interest	Outstanding positions	Never (cumulative)	Exposure calculations, positioning

A common mistake is conflating the two. High volume with unchanged open interest means positions are changing hands, not being created. High volume with rising open interest means new positions are being established—new exposure entering the market.

How Open Interest Feeds Exposure Models

At VannaCharm, we use open interest as the weighting factor for all exposure calculations:

Gamma Exposure (GEX)

$GEX_K = \Gamma_K \times OI_K \times 100 \times S^2 \times 0.01$

A strike with high gamma but low open interest has minimal market impact. A strike with moderate gamma but massive open interest dominates the exposure profile.

Vanna Exposure (VEX)

$VEX_K = \text{Vanna}_K \times OI_K \times 100$

Open interest at OTM strikes determines how much vanna exposure dealers carry—and how violently they'll need to hedge during volatility events.

Charm Exposure (CEX)

$CEX_K = \text{Charm}_K \times OI_K \times 100$

Open interest shows where time decay will force the most significant hedge adjustments overnight and into expiration.

Reading Open Interest Distributions

The shape of open interest across strikes reveals market positioning:

Pattern	Interpretation
Concentrated at round strikes	Strong pinning potential, high gamma walls
Heavy put OI below spot	Downside protection, negative vanna if IV spikes
Heavy call OI above spot	Upside hedging, potential resistance
Spread across many strikes	Diffuse exposure, less predictable flows

Open Interest Changes

Daily changes in open interest reveal positioning shifts:

• Rising OI + Rising Price: New longs entering, bullish conviction
• Rising OI + Falling Price: New shorts/puts entering, bearish conviction
• Falling OI + Rising Price: Shorts covering, less bearish
• Falling OI + Falling Price: Longs exiting, less bullish

For exposure analysis, rising OI means more hedging pressure at that strike. Falling OI means less.

The Dealer Assumption

Exposure models assume dealers are net short options (they sell to customers). This is generally true for index options where:

• Institutions buy puts for portfolio protection
• Retail buys calls for speculation
• Market makers provide liquidity by selling

This assumption determines the sign of exposure. If dealers are short calls at a strike, they have negative gamma there. If they're short puts, they have positive gamma.

Intraday Open Interest Estimation

Official open interest updates only once daily (after market close). For real-time exposure tracking, we estimate intraday OI changes by monitoring volume and inferring whether trades are opening or closing positions.

For technical details on our live OI methodology, see: Further Improving Our Exposure Model With Live Open Interest

Limitations

Open interest has important limitations:

• Delayed updates: Official OI is T+1, requiring estimation intraday
• No directional information: We don't know if OI is long or short
• Dealer assumption: Not all OI is dealer-held; some is customer-to-customer
• Exercise/assignment: OI drops on exercise but hedges may persist briefly

Despite these limitations, open interest remains the best available proxy for aggregate positioning and the foundation of all exposure analytics.

Related Concepts

• Gamma Exposure (GEX) - How OI weights gamma calculations
• Options Flow - Real-time trading activity vs. cumulative OI
• 0DTE Options - Rapid OI changes in same-day expiries