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How to Read Options Chain? - Explained with Example

Published on Friday, June 1, 2018 by Chittorgarh.com Team | Modified on Tuesday, February 27, 2024

An option chain provides detailed information about the available option contracts for a specific underlying stock or index. In particular, it shows all available calls and puts on an underlying asset for a specific expiration date. The list of options is sorted by strike price, and data on premium, open interest, and implied volatility is displayed.

To an inexperienced options trader, an option chain chart can look like a complex maze of data. And it can be overwhelming to understand. If you look around forums and trading websites, you'll find that the options chain is the subject of much discussion and many traders ask questions like:

'How to read an options chain for stocks?'

'How to find the options chain?'

'How to analyze option chain charts?'

And so on.

The option chain is an important chart, full of important information that helps a trader make profitable decisions. If you want to make profitable option trades, mastering the option chain chart is necessary.

This article will help you understand the option chain, make sense of the various data available, and make 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?

Option Chain Meaning

An option chain chart is a listing of the call and put options available for an underlying asset for a specific expiration period. The listing contains information about premium, volume, open interest, etc. for different strike prices.

Let's first look at what an option chain looks like and what data it contains. The NSE provides you with option chain charts for all trading options. So you need to find the option chain you want:

  1. Visit www.nseindia.com and click "Market Data"

  2. By clicking on “Market Data”, a drop-down will open, click on “Option Chain”:

  3. On clicking the options chain, this page will open

  4. You can filter between "Option contracts" and "Select Symbol" to choose any stock option, filter by "Expiry date" or "Strike Price"

    >
  5. The chart is divided into call and put options. On the left side, there is data for call options, and on the right side for put options.

  6. At the centre of the chart, we have various strike prices

  7. On both sides of the strike prices we have different data such as OI, Chng in OI, Volume, IV, LTP, Net Chng, Bid Qty, Bid Price, Ask Price, and Ask Qty

  8. We also see that part of the data on both sides is highlighted in a light hue of yellow and the rest in white. The highlighted part is ITM options, while the non-highlighted part is the OTM options.


Understanding an Option Chain

These are the different components of an option chain. Let us now understand each component in detail:

  1. Options Type: There are two types of options: Call and Put.

    A call option is a contract that gives you the right, but not the obligation, to buy the underlying asset at a certain price and within the expiration date of the option. Please remember that the contract gives you the right, but not the obligation, to buy the underlying asset. A put option, on the other hand, is a contract that gives you the right, but not the obligation, to sell the underlying asset at a specified price and within the expiration date of the option. Here too, the contract gives you the right, but not the obligation, to sell the underlying asset.

  2. Click here to read more on Call & Put Options

  3. Strike price

    The strike price is the price at which you as the buyer and seller of the option have agreed to exercise the contract. Your options trade only becomes profitable when the price of an option exceeds this strike price. On both sides of the strike prices, we also have data such as 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 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 interest among traders for the particular strike price of an Option. Hence there is high liquidity for you to able to trade your Option when desired.

    • Chng in OI: It informs you about the change in open interest within the expiry period. The number of contracts that have been closed, exercised, or settled. A significant change in the OI should be carefully monitored.

    • Volume: It is another indicator of traders' interest in a particular option strike price. It provides information on the total number of contracts of an option for a specific strike price that is traded on the market. It is calculated daily. The volume can help you understand the current interests of traders.

    • IV:IV is an abbreviation for Implied Volatility. It provides information about what the market thinks about the performance of the underlying asset. A higher IV means the potential for strong price fluctuations, and a low IV means no or fewer fluctuations. The IV says nothing about the direction in which prices are moving, whether upwards or downwards.

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

    • Net Chng: This is the net change in LTP. The positive changes, i.e. the price increase, are shown in green, while the negative changes, i.e. the price decrease, are shown in red.

    • Bid Qty: This is the number of buy orders for a specific strike price. It provides information about the current demand for the strike price of an option.

    • Bid Price: This is the price specified in the last buy order. A price that is above the LTP indicates that demand for the option is increasing and vice versa.

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

    • Ask Qty: This is the number of open sell orders for a specific strike price. It provides information about the offer for the option.

  4. Now let's understand why part of the date is highlighted while the rest appears in white. To understand this, we first need to get to know ITM, ATM, and OTM.

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

    • At-The-Money (ATM): If the strike price of a call or put option is equal to the current market price of the underlying asset, it is ATM.

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

The highlighted part is in ITM, while the parts marked in white are OTM. For call options, exercise prices that are below the current price of the underlying are highlighted, while for put options, exercise prices that are above the current price of the underlying are highlighted.


Conclusion

A thorough study of the options chain can give you a lot of insight into an option and help you make an informed decision for your trade. So learn to read an option chain to make better trading decisions.

Frequently Asked Questions

  1. 1. What is OI in option chain?

    Open Interest (OI) is a number that indicates how many futures (or options) contracts are currently outstanding (open) on the market.

     

  2. 2. What is IV in option chain?

    It is used to determine the future volatility of the share or index. Since futures and options are traded at a predetermined price in the future, implied volatility plays an important role in F&O transactions. Implied volatility is often used to value options contracts, with high implied volatility leading to higher premiums for options and vice versa.

     

  3. 3. What is volume in option chain?

    Volume is a measure of the total number of shares or contracts traded in a day. On the stock market, the trading volume does not influence the number of shares traded. On the options market, however, the volume of a particular contract can lead to outstanding contracts either being opened or closed.

     

  4. 4. What is LTP in option chain?

    LTP stands for Last Traded Price. It displays the price information of all calls and puts. The premium amount that the buyer and seller agree on to enter into the trade is called the Last Traded Price (LTP) for options.

     

  5. 5. What option chain indicate?

    An option chain is a detailed representation of all available option contracts for an asset (stock, index, currency, commodity) and provides a quick overview of all available put options

     it provides a quick overview of all available put and call options of the asset in question with their prices, volume, and details of open positions, which can be beneficial for a trader to analyze the market and take appropriate immediate action.

     

  6. 6. Why option chain is important?

    The options chain helps the traders to understand how the market would react at different strike prices.

     

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14 Comments

14. Amar Pawar   I Like It. |Report Abuse|  Link|August 18, 2020 11:28:18 PMReply
On 18th Aug 2020, there was more 'Open Interest, in a 'Put' side of Nifty for strike rates of 11000, 11100, 11200, 11250 and 11300. Comparatively the 'OI' was much lower in a 'Call' side. I assumed, this is a bearish sign and bought no. of Puts. But market opened by a small bullish trend and all the day was going up and up & Nifty closing with +138 points.(Nifty closed at 11385/-).
My question is, why market went bullish and why didn't it go bearish even after so much buying is a 'Put'?
14.3. Ashok V.   I Like It. 1|Report Abuse|  Link|January 8, 2021 11:42:44 PM
I think you made a mistake. If OI is increasing in OTM PE, it's a sign of bullish market. Why ? FII & MF are preferring selling options. They sold & hold OTM PE & created OI. When market turns bullish, PE premium get reduced & they book profit !
Always study all 4 compartments of Option Chain. At least OTM sides.
14.4. Ajay   I Like It. |Report Abuse|  Link|December 21, 2023 8:28:57 PM
High Oi on call - bullish sign
High Oi on Put - bearsh sign

In short Long unwinding
13. Arun potdar   I Like It. |Report Abuse|  Link|October 10, 2023 1:01:23 PMReply
Dear sir I didn't got information about nse option chain chart &how to read it kindly explain it in detail
12. Sandeep Sihag   I Like It. |Report Abuse|  Link|December 1, 2020 11:04:59 AMReply
How to identify support and resistance from option chain?
12.3. Mukesh   I Like It. |Report Abuse|  Link|May 27, 2021 10:05:44 PM
How read Option Chain and how to use it Option trading
12.4. Raghu   I Like It. |Report Abuse|  Link|November 15, 2022 7:42:32 AM
Sir, please explain in detail how can we calculate PCR between 03:20p.m to 03:28p.m. thank you..
11. NAWAZ   I Like It. |Report Abuse|  Link|August 3, 2022 1:13:57 PMReply
Your contant was very useful .i have one question how to identify about option selling OI in stock options
10. sandeep   I Like It. |Report Abuse|  Link|August 14, 2021 1:49:07 PMReply
stock market is not easy for all . so if you are not knowledgable leave it.
chor do agar samjh me nahi aata to
PAISA BARBAD MAT KARO
10.1. PRASHANT KRISHNA POOJARY   I Like It. |Report Abuse|  Link|December 27, 2021 10:24:46 AM
zayada gyan mt chod. MF
In fact you should encourage newbies to learn stock market. It has immense potential to change lives.
9. Abdul Shheed Peedikakani   I Like It. |Report Abuse|  Link|February 19, 2021 11:02:12 PMReply
how to calculate Change in OI, what is the difference between Volume and Change in OI.
I can see that Volume is greater than change in OI, Why?
please help.
9.1. Tusar Rout   I Like It. |Report Abuse|  Link|April 1, 2021 1:19:53 PM
When A (writer/seller) initiates an option contract and sells to B, the OI is increased to +1. But When B (just a buyer) sells the contract to another buyer- C, in this situation OI doesn't increase but the volume increases to +1. During all the transitions throughout the day/week (B --> C --> D --> E) only volume increases not the OI. Hence Volume is higher than OI. How does the OI increase? When another Writer/Seller AA initiates a fresh option contract and sells the option to BB, then OI increases +1 (Now total OI = 2).
How does the OI decrease? When the 1st writer/seller A buyback the contract from a user X to close/exercise the contract (rare cases for Big Guys/FII/DII), the IO decreses to -1 (Now total OI =1). Most of the options expire worthless which makes Option Sellers lead 66% winning chances (Limited Profit, Uncapped Risk), while option buyers lead to 33% winning rate (Limited Risk, Uncapped Profit).
8. Rakesh Kumar   I Like It. |Report Abuse|  Link|October 11, 2020 7:34:44 AMReply
What is the significance of graph of call and put which opens up if green button (last button at the Put side) is pressed.
7. Madhava Variar   I Like It. |Report Abuse|  Link|September 26, 2020 10:21:15 AMReply
Well explained
6. Ramanathan S   I Like It. |Report Abuse|  Link|May 17, 2020 11:38:05 PMReply
why its cost more for selling options then buying
6.1. APOORVA KUMAR RAI   I Like It. |Report Abuse|  Link|July 2, 2020 10:09:08 PM
Because of upper circuit.
5. Ajith Kumar B   I Like It. |Report Abuse|  Link|April 28, 2020 11:37:03 PMReply
It's well briefed about the basics of Option chain for a beginner to understand what is what
4. K.Purna chandar   I Like It. |Report Abuse|  Link|April 10, 2020 1:28:53 PMReply
Thanks for your great information, how to execute a trade
4.1. Ujjwal   I Like It. |Report Abuse|  Link|April 10, 2020 9:25:21 PM
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
3. Victor   I Like It. |Report Abuse|  Link|December 17, 2019 6:45:15 PMReply
Sir option chain how many minutes update please inform me thanks
2. Ravi Shanker M   I Like It. 1|Report Abuse|  Link|May 18, 2019 12:47:55 PMReply
It given me a clear idea on how to read option chain. Thanks to the author of this article.
1. Dnyanesh   I Like It. 1|Report Abuse|  Link|November 12, 2018 6:09:22 PMReply
One of the best article for a newbie. Appreciated !