How To Read Option Chain?

An option chain is a chart that gives detailed information about all stock options available for Nifty stocks.

Options can be confusing at first. It may appear like rows of random numbers. Option chain charts can provide valuable information about the security's current value and how it will change over time. Investors can become more knowledgeable and make better market decisions by understanding the options chain.

What is an Options Chain?

A call and put section of an options chain are called: A call option gives you the right, but not the obligation, to purchase the underlying at a specific price and within the expiration date. A put option gives you the right, but not the obligation, to sell the underlying within the expiration date of the Option. Additional information about an option's strike price includes the stock price at the which the investor would buy the stock if it is exercised. An option chain lists all options contracts for a given security, including both calls and puts. This option chain matrix is best used for the next trading day. To assess market conditions, traders tend to focus on the 'last price', 'net change', 'bid' and ask' columns.

How do I read the options chart

- Type of Options: There are two types, Call and Put.

Strike price: The price at the which the seller and buyer of an Option agree to exercise the option. Options trades become profitable when the value of an Option exceeds the strike price.

- OI: Open interest refers to the traders' interest during a specific strike price. The higher the amount, the greater the interest of traders in the strike price for an Option. You can trade your Option if there is high liquidity.

- OI Change: This indicates the OI change before the expiration date. A difference in OI means that contracts have been closed, exercised or squared off.

Volume: This indicates trader's interest and the total volume of Option contracts for a specific strike price traded within a market. It is calculated every day. The volume can be used to determine the traders' current interest.

- IV: Implied volatility indicates price swings. A high IV signifies large swings in prices. A low IV indicates few or no swings.

LTP is the Last Traded price of an option.

- Net Change is the net change in LTP. Positive changes indicate an increase in price. Unfavourable changes, on the other hand, indicate a decrease.

Bid Qty is the number buy orders for a particular strike price. This indicates the current demand for an Option's strike price.

- Bid price: This is the value quoted in the last order. An increase in the LTP price could indicate that Options demand is increasing.

- Ask price is the value that was quoted in the last sale order.

It is the number open sell orders for a particular strike price. It informs you about the possibility of purchasing the Option.

- In the Money: A strike price for a call option that is less than its current market value is ITM. If the strike price for the put option is greater than the current market price, it will be ITM.

- At-The Money: A Call or Put option that is equal to the current market value of the asset is considered ATM.

OTM: The strike price of the option to call is greater than its present market value. OTM's put option applies if the strike price of the call option is less than the asset's current market value.

Relationship between the underlying Option and the strike price