Open Interest indicates the number of all open options contract for the particular option. This is an important measure of liquidity as it indicates the overall active participation in the position. High open interest, or high participation, in the options contract gives the trader reasonable confidence that there will be a counterpart for closing or for adjusting the position of the contract life.
A new options contract is created when a buyer purchases a contract from a seller who does not already hold the options contract. Whenever an options trader or investor sell an options position that they do not already have in their portfolio, a new position is created both in their portfolio as well as on the options exchange and the open interest of the options position increases by 1. Selling back the option purchase or buying back the option contract written closes the position. When the position is closed, the Open Interest decreases by 1, removing it from the open interest.