How to Read Options Chain - Explained with example

Published on Friday, June 1, 2018 by Chittorgarh.com Team | Modified on Sunday,

April 19, 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.

What is an Option Chain?

In simple words, 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:

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

Option Chain NSE

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

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. Let's see
what we have here:

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

At the center of the chart, we have various strike prices.

Option Chain Strike Price

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

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:

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

Now, what is a strike price? It 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.

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.

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.

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.