Using Open Interest & Volume to Confirm a Trade
How to Use Open Interest & Volume to Confirm a Trade
If you’re a beginner in the Canadian options market, understanding open interest (OI) and volume is key to making smart trades. These two metrics help confirm whether other traders are actively participating in a specific contract — and whether you’ll be able to enter or exit a trade without slippage or delay.
What Is Open Interest?
Open interest is the total number of outstanding option contracts that are currently “open” — meaning they haven’t been closed, exercised, or expired. A high OI usually indicates strong trader participation and confidence in that strike/expiry combo.
- High OI = liquid market = easier to enter/exit trades
- Low OI = potentially illiquid = higher risk of getting “stuck”
What Is Option Volume?
Volume shows the number of contracts traded during the current day. While OI tells you how many contracts exist, volume shows current activity — interest happening right now.
- High volume with low OI = potential new interest in that contract
- Low volume and low OI = little market interest, avoid it
Why They Matter in Canada
Canadian options markets (like the TSX) tend to have lower volume than the U.S. — so choosing trades with sufficient OI and daily volume is essential for safety and ease. Always check these two metrics before placing your covered call or cash-secured put.
Best Practices
- ✅ Look for OI above 100–200 minimum for TSX options
- ✅ Favor contracts with volume at least 10+ daily
- ✅ Use Optrader.ca to screen and filter based on OI and volume automatically
- 🚫 Avoid trades with 0 OI and 0 volume unless you're willing to wait for fills
Conclusion
Open interest and volume are your confirmation tools. When used properly, they help you avoid illiquid trades and reduce execution risk — especially important in Canadian markets where liquidity can vary widely. Always check these metrics before clicking “Buy to Open” or “Sell to Open.”
