If you have been hearing the term ‘options chain’ quite frequently now and are quite intuitive about it, then here we explain everything about it. After gaining a clear understanding of the Options chain, you can enhance profitability by making correct trading strategies and decisions.
What is an options chain?
If you are thinking about what is options chain and how it is important, then be informed that before stepping into the world of options trading, get ready to comprehend the options chain maze. The option chain is an exhaustive detail in the form of charts. The purpose is to inform the person concerned about the stock contracts and help them with in-depth data and relevant information on the Nifty stocks.
Why is the Option Chain important?
Since the option chain offers a sea of information underlining important metrics like current security value, etc., the craze for the same has been surging. Knowing and understanding the option strategy builder helps investors make the right decisions while playing in the stock market. Also called the options matrix, professional and veteran traders view the price movements. Even the users can evaluate and understand the low or high liquidity level of a strike.
What does an Options Chain include?
The options chain is the list of option contracts bifurcated into two different sections of call and put for security.
While a call option fetches you the right but not the obligation to purchase an underlying asset at a specific price before the expiry, a put option is a contract providing you the right with no obligation to sell the asset at a specific price before the expiry of the stock. You also need to know about the term ‘option strike’. It is the stock price at which the investor can purchase the stock. There are other constituents too such as, net change, bid, last price, ask, etc.
What does an Options Chain indicate?
To understand the options chain, you need to understand the following components of the options chart in detail. Comprehending them will allow you to read the options chain well.
Call Option
As stated earlier, a call option is a contract that enables the buyer to have the right to purchase an underlying security at a price under the expiration date.
Put Option
A put option is another contract that enables the seller to have the right to sell an underlying security at a price under the expiration date.
Strike Price
The strike price is the price at which the Option buyers and sellers start the contract. In case of options price exceeds the strike price, the options trade becomes lucrative.
Symbol
Every option comes with a symbol. Also called OPRA code or the Options Price Reporting Authority, it may look cryptic but is effective in combining all the options information.
OI
OI is the Open Interest which indicates the traders’ interest at the time of a strike price. More the amount, the interest is higher. With more interest among traders, the liquidity to trade is higher.
OI Change
Change in Open Interest translates to significant changes in the Open Interest before the expiry date. OI difference means closed, exercised, or squared-off contracts.
Volume
The volume means the trader’s interest and total options contracts. This indicates the Interest of several traders and is calculated every day.
ITM
Also called In-the-Money, it is when the call strike price is lesser than the current market value. In another sense, the put option is the In-The-Money when the prevailing market price is lesser than the stock price.
ATM
Coming to the ATM or At-The-Money is when the put or call strike price is the same as the present market price of a security.
OTM
OTM or Over-The-Money is a situation where the strike price is higher than the prevailing market price of a stock. However, when the strike price is lesser than the present market price of a security, then it is OTM put.
IV
Implied Volatility or IV displays the price swing. High IV means high price swing and low IV means low price swing.
LTP
As the name suggests, LTP or Last Traded Option is the last traded option price.
Bid Price
The bid price is nothing but the quoted real value as per the last buy order. A price more than the LTP signifies huge option demand.
Bid Quantity
There is Bid Quantity as well, which means the total number of buy orders at a specific strike price. This also indicates the option strike price demand.
Ask Quantity
Ask Quantity is the open sell orders at a price. In other words, it is the availability of the option.
Ask Price
Ask Price at the Options Trading App is the value quote according to the last sell order.
Wrapping up
An option chain displays loads of relevant information. Looking at the same, the investor can trade options in a better way. One of the best visual tools for investors, the options chain showcases all available option contracts for security, connecting the details into a chain.
