Open interest counts the number of option contracts outstanding. It is often treated as a map of who is long and who is short. It is not.
01What open interest tells you
Every open contract has a buyer and a seller. Open interest says how many contracts exist at a given strike and expiry, but not which participants hold the long side and which hold the short side.
02Why direction cannot be inferred
Inferring dealer positioning requires an assumption about who initiated the trades that created the open interest. The same open interest can result from customers buying options from dealers or selling options to them, and those two cases imply opposite dealer gamma. Spreads, hedged positions and trades between non-dealers complicate the picture further.
Every contract has two sides. Open interest does not say which side anyone is on.
03Better evidence
Trade-level data on whether trades were buyer- or seller-initiated, changes in open interest read alongside volume, and knowledge of how participants typically behave in a given product all improve the estimate. None of them make it certain.
Insights are research notes published for general information and education. They describe market mechanisms, not the firm’s positions or results. They are not investment advice or research recommendations, and nothing in them is an offer or solicitation.