How to Read Options Chain? - Explained with Example

Published on Friday, June 1, 2018 by Chittorgarh.com Team | Modified on Wednesday, June 10, 2020

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For a beginner in Options trading, an Options Chain Chart may look like a complex maze of data. And it may be overwhelming to understand. Browse across forums and trading websites and you'll find Options Chain to be a subject of many discussions, with many traders asking questions like:

"How to read a Stocks Options Chain?"

"How to find Options chain?"

"How to analyze Options chain charts?"

And so on.

Option chain is an important chart, full of vital information that helps a trader make profitable decisions. If you want to make profitable trades in Options then mastering the Options Chain Chart is a must.

This article will help you gain a good understanding of the Options Chain, make sense from the various data available and take the right trading decision.


Contents:

  1. What is an Option Chain?
  2. Understanding an Option Chain
  3. Conclusion
  4. Options Trading Platform Reviews

What is an Option Chain?

An Option Chain Chart is a listing of Call and Put Options available for an underlying for a specific expiration period. The listing includes information on premium, volume, Open Interest etc., for different strike prices.

Let's first see how an Option Chain looks like and understand the various data available in it. NSE provides you with Option chain charts for all trading Options. Here's what you need to do find the desired Option Chain:

  1. Visit www.nseindia.com and search for the desired Option in the search bar available at home page.

    Option Chain NSE

  2. On entering your Options Name, you will be taken to a specific Option page. I entered 'Nifty 50' in the search box and I was taken to this page:

    Find Option Chain

  3. On clicking the options chain, I was taken into this page. This is what we were looking for- the Option Chart.

    Option Chain NIFTY

    This is the Option Chain Chart for NIFTY 50 expiring on JUNE 31, 2018.

  4. The Chart is divided into Call and Put Options. On the left side, we have data for Call Options and Put Options on the right side.

    Option Chain Example
  5. At the center of the chart, we have various strike prices.

    Option Chain Strike Price
  6. On both sides of the strike prices, we have various data like OI, Chng in OI, Volume, IV, LTP, Net Chng, Bid Qty, Bid Price, Ask Price and Ask Qty.

    Option Chain Data
  7. We also see a part of data on both sides are highlighted in the pinkish shade and the rest is in white.

    Option Chain ITM ATM OTM

Understanding an Option Chain

These are various components of an Options Chart. Let's understand each component in detail now:

  1. Options Type: Options are of two types; Call and Put. A Call Option is a contract that gives you the right but not the obligation to buy the underlying at a specified price and within the expiration date of the Option. Please remember the contract gives you the right but it is not mandatory for you to buy the underlying. A Put Option, on the other hand, is a contract that gives you the right but not the obligation to sell the underlying at a specified price and within the expiration date of the Option. Here again, the contract gives you the right but it is not mandatory for you to sell the underlying. Click here to read more on Call & Put Options

  2. Strike price is the price at which you as a buyer and seller of the Option agreed to exercise the contract. Your Options trade will become profitable only when the price of an Option crosses this strike price.

  3. We also on both sides of the strike prices, data like OI, Chng in OI, Volume, IV, LTP, Net Chng, Bid Qty, Bid Price, Ask Price and Ask Qty. let's understand what each of them means:

    • OI: OI is an abbreviation for Open Interest. It is a data that signifies the interest of traders in a particular strike price of an Option. OI tells you about the number of contracts that are traded but not exercised or squared off. The higher the number, the more is the interest among traders for the particular strike price of an Option. And hence there is high liquidity for you to able to trade your Option when desired.

    • Chng in OI: It tells you about the change in the Open Interest within the expiration period. The number of contracts that are closed, exercised or squared off. A significant change in OI should be carefully monitored.

    • Volume: It is another indicator of traders interest in a particular strike price of an Option. It tells us about the total number of contracts of an Option for a particular strike price are traded in the market. It is calculated on a daily basis. Volume can help you understand the current interest among traders.

    • IV: IV is an abbreviation for Implied Volatility. It tells us about what the market thinks on the price movement of the underlying. A higher IV means the potential for high swings in prices and low IV means no or fewer swings. IV doesn't tell you about the direction, whether upward or downward, movement of the prices.

    • LTP: It is the abbreviation for Last Traded Price of an Option.

    • Net Chng: It is the net change in the LTP. The positive changes, means rise in price, are indicated in green while negative changes, decrease in price, are indicated in red.

    • Bid Qty: It is the number of buy orders for a particular strike price. This tells you about the current demand for the strike price of an Option.

    • Bid Price: It is the price quoted in the last buy order. So a price higher than the LTP may suggest that the demand for the Option is rising and vice versa.

    • Ask Price: It is the price quoted in the last sell order.

    • Ask Qty: It is the number of open sell orders for a particular strike price. It tells you about the supply for the Option.

  4. Now let's understand why a part of the date is highlighted in a shade while the rest is in white. To understand it, we need to first learn ITM, ATM, and OTM.

    • In-The-Money (ITM): A call option is in ITM if its strike price is less than the current market price of the underlying asset. A put option is ITM if its strike price is greater than the current market price' of the underlying asset.

    • At-The-Money (ATM): When the strike price of a Call or Put option is equal to the current market price of the underlying asset then it is in ATM.

    • Over-The-Money (OTM): A call option is OTM if the strike price is greater than the current market price of the underlying asset. A put option is OTM if the strike price is less than the current market price of the underlying asset.

The highlighted part is in ITM while those in the white are OTM. So for Call Options, strike prices lower than the current price of the underlying are highlighted while for Put Options strike prices greater than the current price of the underlying are highlighted.


Conclusion

A deep study of Options Chain can provide with a lot of insights on an Option and help you make an informed decision on your trade. So master reading an Options chain to make better trading decisions.


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6 Comments

Ramanathan S
6. Ramanathan S  May 17, 2020 23:38 I Like It. | I Don't Like It. | Report Abuse Reply
why its cost more for selling options then buying
APOORVA KUMAR RAI
6.1. APOORVA KUMAR RAI  Jul 2, 2020 22:09 I Like It. | I Don't Like It. | Report Abuse
Because of upper circuit.
Ajith Kumar B
5. Ajith Kumar B  Apr 28, 2020 23:37 I Like It. | I Don't Like It. | Report Abuse Reply
It's well briefed about the basics of Option chain for a beginner to understand what is what
K.Purna chandar
4. K.Purna chandar  Apr 10, 2020 13:28 I Like It. | I Don't Like It. | Report Abuse Reply
Thanks for your great information, how to execute a trade
Ujjwal
4.1. Ujjwal  Apr 10, 2020 21:25 I Like It. | I Don't Like It. | Report Abuse
In a Bullish Market

Buy Deep in the Money, ATM, ITM, OTM Calls
Sell Deep out of the Money, OTM, ATM, ITM, Puts

(Selling Puts not really advisable as it will be expensive, Risky & limited profit) so rather stick to Buy ITM calls only.


In a Bearish Market

Buy Deep out of the Money, OTM, ATM, ITM Puts
Sell Deep in the Money, ATM, ITM, OTM Calls

Can go for both Trades as Buying OTM Puts will give infinite profit & selling ITM calls will give limited profit with limited risk
Victor
3. Victor  Dec 17, 2019 18:45 I Like It. | I Don't Like It. | Report Abuse Reply
Sir option chain how many minutes update please inform me thanks
Ravi Shanker M
2. Ravi Shanker M  May 18, 2019 12:47 I Like It. | I Don't Like It. | Report Abuse Reply
It given me a clear idea on how to read option chain. Thanks to the author of this article.
Dnyanesh
1. Dnyanesh  Nov 12, 2018 18:09 I Like It. | I Don't Like It. | Report Abuse Reply
One of the best article for a newbie. Appreciated !








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