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What Is the Relationship between Open Interest and Bid-Offer Spread in Options?

High open interest indicates high market participation and liquidity for a contract, which generally correlates with a tighter spread.
Greeks.Live10.11.25

What Is the Relationship between Open Interest and Bid-Offer Spread in Options?

Open interest (OI) is the total number of outstanding option contracts that have not yet been closed or exercised. High open interest for a specific contract suggests high market participation and strong liquidity.

Generally, high OI is correlated with a tighter bid-offer spread because more participants lead to greater competition among market makers, encouraging them to narrow their quotes.

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