We have already understood the concept of open interest. Now let’s understand a put option. Access to the right to buy is a call option. In our example Sita got the right to buy Noor’s house and we established that she holds a long position in a call option contract. Opposite of right to buy is the right to sell and this is called a put option. In this case, the buyer of the option will pay a premium to seller of the option to get a right to sell.
Always remember that the option lies with the buyer of the call/put contract. Call option buyer has the right to buy and thus an option to buy or not, as per her wish. But if she wants to buy, seller of the option is obligated to sell the underlying. This is the reason buyer of the option is paying a premium to get this right. Similarly, in the case of put option, buyer has the right to sell the underlying and thus the option to decide if she wants to sell the same or note. But if she wants to sell the underlying, seller of the put contract is obligated to buy the underlying.
Put open interest is the sum of open put contracts across all strike prices for all expiry periods. Suppose 8 put options are open across all strike prices that are set to expire this month. Similarly 12 put options are open that will expire next month and 3 open put options will expire the month after that. The total put option open interest is 23 (8+12+3).