Option Chain: What is It and How To Read It?

Options chain can be defined as the listing of all option contracts. It comes with two different sections: call and put.
A call option means a contract that gives you the right but does not give you the obligation to buy an underlying asset at a particular price and within the option’s expiration date.
On the other hand, a put option means a contract that gives you the right but does not give you the obligation to sell an underlying asset at a particular price and within the option’s expiration date.
An option strike means the stock price at which the investor is ready to buy the stock if the choice is exercised.
An option chain lists all option contracts, including put and call option for given security. However, several traders focus on net change,’ ‘bid,’ ‘last price,’ and ‘ask,’ columns to assess current market conditions.
Option chain is also called the option matrix. With the help of the option matrix, several skilled traders can easily see the direction of price movements.
Option Matrix also allows users to analyze and identify the points at which a low or high level of liquidity appears. Typically, it limits the traders to evaluate the depth and liquidity of specific strikes.

Here are components of the options chart that will help you to read the options chain chart easily. Let’s look at the given below:

• Options Type

Typically, options have two different types:
a. Call Option
Call option means a contract that extends the right to buy underlying at a specific price within a specified date
b. Put Option
Put option is also a contract that extends the right to sell underlying at a specific price within a specified date.

• Strike Price

Strike price means a price at which both buyers and sellers of the Option agree to execute a contract. When the options price goes beyond the strike price, the options trade turns out to be profitable.

• In-The-Money or ITM

In-the-Money ATM is considered when the call option’s strike price is a smaller amount compared to the present market value.
Conversely, the put option is the In-The-Money ATM if the current market price is less than the stock price.

• At-The-Money or ATM

At-The-Money or ATM defines a situation wherein the strike price of a put or a call option is equivalent to the current market price of an underlying asset.

• Over-The-Money or OTM

Over-The-Money is considered when the strike price is more than the current market price of an underlying asset.
Similarly, on the other hand, if the strike price is lower than the current market price of an underlying asset, then the put option is said to be at OTM.

• Open Interest or OI

Open Interest means the Interest of traders during a specific strike price. The higher the amount, the Interest will be more among the traders for the actual strike price of an option. Since there’s more Interest among traders, there will be high liquidity to trade your opinion.

• Change in Open Interest

It shows all the significant changes taken place in the Open Interest before the expiration date. The significant difference in OI signifies that either contracts are closed, exercised, or squared off.

• Volume

The volume shows the trader's interest, and the total number of contracts of an option for a specific price traded within the market.
Volume is calculated daily and can even help understand the current Interest of several traders.

• Implied Volatility or IV

Implied Volatility showed the price swing. High Implied volatility means there will be a high swing in prices, and low implied Volatility means there will be few or low swings in prices.

• Last Traded Option or LTP

LTP means the last traded price of an option.

• Bid Price

Bid Price means the actual value quoted within the last buy order. A price above the Last Traded Price (LTP) may indicate rising demand for options.

• Bid Quantity

Bid Quantity is the total number of buy orders booked for a particular strike price. However, it tells you about the current demand for the strike price of an option.

• Ask Quantity

Ask Quantity is the total number of open sell orders for a particular strike price. It indicates the availability of the options.

• Ask Price

Ask Price is the value quotes within the last sell order.

• What is an Option Chain?

An option chain is a chart that provides in-depth information about all stock option contracts available for Nifty stocks.

• What is the meaning of the call and put option?

A call option means a contract that gives you the right but does not give you the obligation to buy an underlying asset at a particular price and within the option’s expiration date.
On the other hand, a put option means a contract that gives you the right but does not give you the obligation to sell an underlying asset at a particular price and within the option’s expiration date.

• What is the meaning of open Interest in the option chain?

Open Interest means the Interest of traders during a specific strike price. The higher the amount, the Interest will be more among the traders for the actual strike price of an option.

• What does bid quantity mean?

Bid Quantity is the total number of buy orders booked for a particular strike price. However, it tells you about the current demand for the strike price of an option.