Open interest and the put/call ratio

What open interest is, what it means when it builds, and how to read the put/call ratio without being fooled by an expiry.

Open interest, OI for short, is the number of option contracts that are open right now: opened, and not yet closed or expired. Every contract has a buyer and a seller on the other side, and the pair is counted once.

OI is not volume. Volume counts every trade; OI counts what is still standing. A contract can trade ten times in a day and leave open interest where it was.

A three-step example

Alice, Bob, and Carol trade 10 call contracts at one strike.

Alice buys 10 calls from Bob. A new contract exists: open interest rises by 10, and 10 contracts of volume are recorded.
Alice sells those 10 calls to Carol. The contract only changed hands: open interest does not move, and volume rises by another 10.
Carol and Bob close against each other. The contract is gone: open interest falls by 10, and volume rises by another 10.

Illustration with made-up numbers. Volume is what traded in each step; open interest is what is still open afterwards.

Thirty contracts of trading, and nothing left open at the end. That is why the two lines on the put/call chart do not move together.

What it means when open interest builds

Rising at a strike: new positions are being opened there. More money is committed, and more hedging is attached to that level. A large pile is where a gamma wall comes from (lesson 6).
Falling: positions are being closed, or have expired. Open interest drops sharply at every expiry.
It cannot say who is long. A rise in put open interest can be protection, a bet on a fall, or someone selling puts to collect premium, which is a bullish act. The data cannot separate them.

Illustration with made-up numbers. Where open interest piles up, hedging concentrates, and a gamma wall forms.

The put/call ratio

The put/call ratio is put activity divided by call activity. Knowla draws two versions: by open interest, which is what is held, and by volume, which is what traded in the last 24 hours.

ratio = put open interest ÷ call open interest

A worked example from a real Bitcoin book on 1 November: about 201,900 BTC of call open interest and 144,900 BTC of put open interest give 144,900 ÷ 201,900 = 0.72. Puts were about 42% of all open interest (the ratio divided by one plus the ratio). Above 1, puts outweigh calls; below 1, calls do.

Reading the chart

Blue is the open-interest ratio, read on the left axis. It moves slowly, because open interest changes slowly, so its scale is narrow: a rise from 0.66 to 0.72 is a real shift in what is held.
Amber is the volume ratio, read on the right axis. Volume is a rolling 24-hour figure, so this line swings more and reacts first.
Each line has its own scale. Read the shape of each against its own history, not the height of one against the other.
Bitcoin and ether each have their own normal, and it drifts over months. A level means something only against that coin's own recent line.

The expiry trap

Options expire on a schedule: on Deribit at 08:00 UTC, with the big ones on the last Friday of the month. When calls expire, their open interest disappears, and the ratio rises even though nobody bought a single put.

Illustration with made-up numbers. The puts did not change. The calls shrank, so the ratio rose.

A sudden step in the blue line that lines up with an expiry is almost always this. To check, open OI Delta for that day and see which contracts dropped out.

Putting it to use

Look for changes that do not line up with an expiry. Those are the real shifts in positioning.
Pair it with price. Price falling while put volume jumps usually reads as hedging or fresh bearish bets; price rising while put open interest builds is often holders hedging.
Use it as context for the gamma screens, never as a signal on its own. It describes what is held; it does not predict what price will do.

See it on the data.

Open the Overview