The open interest is the total number of options and/or futures contracts that are not closed or delivered (i.e. outstanding) on a particular day in a particular option series. Every opening transaction increases the open interest by 1 while every closing transaction decreases the open interest by 1. Lets understand its impact on our financial markets.
1. Increasing open interest means that new money is flowing into the marketplace. The result will be that the present trend (up, down or sideways) will continue.
2. Declining open interest means that the market is liquidating and implies that the prevailing price trend is coming to an end.
3.A leveling off of open interest following a sustained price advance is often an early warning of the end to an up trending or bull market.
Have a look on the infograph: Technical Funda – Open Interest