Open interest refers to the numbers of outstanding contracts of a particular option. By knowing this number, we have a good indication of the liquidity of the option.
The rules are not to trade option with low open interest and do not invest more than 10% of the open interest. Open interest could also be an indicator of market direction. Normally, when the open interest for call option very much higher than the put option, most of the investor think the price of the underlying stock will increase. When most of the buyer predicted the price of the stock will drop, the open interest for put option will be higher as compared to open interest in call option.