An option chain is a chart that provides in-depth information about all stock option contracts available for Nifty stocks.
Options may be confusing initially; it may seem like rows of random numbers. Option chain charts provide valuable information about the current value of security and how it will be affected in the long term. Understanding an options chain can help investors become more informed and make the right choices within the market.
What Is an Options Chain?
An options chain has two sections: call and put. A call option is a contract that gives you the right but not the obligation to buy for the underlying at a specified price and within the Option’s expiration date. A put option is a contract that gives you the right but not the obligation to sell the underlying at a specified price and within the Option’s expiration date. An option’s strike price is additionally listed, which is that the stock price at which the investor buys the stock if the choice is exercised. An option chain lists all available option contracts, both puts, and calls, for given security. The option chain matrix is most useful for the next trading day. Traders typically focus on ‘last price,’ ‘net change,’ ‘bid,’ and ‘ask’ columns to assess current market conditions.
How to read the options chart?
– Options Type: There are two types of options Call and Put.
– Strike price: The price at which the buyer and seller of the Option agrees to exercise the contract. Options trade become profitable when the worth of an Option crosses the strike price.
– OI: Open Interest signifies the interest of traders during a particular strike price. The greater the amount, the more the interest among traders for the actual strike price of an Option. And hence there’s high liquidity for you to trade your Option.
– Change in OI: It shows the change in the OI before the expiration date. The difference in OI indicates contracts that are closed, exercised, or squared off.
– Volume: It indicates trader interest and the total number of contracts of an Option for a particular strike price traded within the market. It is calculated daily. Volume can help understand the current interest of traders.
– IV: Implied Volatility indicates the swing of prices. High IV indicates high swings in prices, and low IV means few or no swings.
– LTP: It is the Last Traded Price of an Option.
– Net Change: It is the net change of LTP. Positive changes mean a rise in price, while unfavourable changes imply a decrease in price.
– Bid Qty: It is the number of buy orders for a specific strike price. This tells you about the present demand for the strike price of an Option.
– Bid Price: It is the worth quoted within the last buy order. A price above the LTP may suggest that the Options demand is rising and the other way around.
– Ask price: It is the value quoted within the last sell order.
– Ask Quantity: it is the number of open sell orders for a specific strike price. It tells you about the availability of the Option.
– In-The-Money: If the strike price of the call option is a smaller amount than the present market value, it is considered ITM. If the strike price of the put option is higher than the current market price, it is ITM.
– At-The-Money: When the strike price of a Call or Put option is adequate to the present market value of the underlying asset, it is in ATM.
– Over-The-Money: If the strike price of the call option is more significant than the asset’s present market value is OTM. OTM’s put option is if the strike price is a smaller amount than the current market value of the underlying asset.
The relationship of the underlying Option to the strike price
| Put | Call | |
| In-the-money option | The strike price of the Option is higher than the price of the underlying | The strike price of the Option is less than the underlying the |
| Out-of-the-money Option | The price of the underlying is greater than the strike price of the Option | The price of the underlying is less than the strike price of the Option |
| At-the-money option | The price of the underlying is equal to the strike price of the Option | The price of the underlying is similar to the strike price of the Option |
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