Option Chain

An option chain shows the call and put option contracts available for an underlying asset. It helps you compare contracts based on strike price, expiry, premium, trading activity, and other data.

• There are 2 main option types: calls and puts.
• Key fields include strike price, expiry date, bid price, ask price, volume, open interest, and implied volatility.
• Calls give the buyer the right to buy, while puts give the buyer the right to sell the underlying asset according to the contract terms.
• In the example below, TIL trades at ₹1,500, while a ₹1,500 call has an ask price of ₹25.
• Option-chain data can help you assess liquidity, compare contracts, and plan options strategies.

An option chain shows the available option contracts for a particular underlying asset. Contracts are generally arranged into call and put sections across different strike prices and expiry dates.

A call option gives you the right, but not the obligation, to buy the underlying asset according to the contract terms. A put option gives you the right to sell it.

Each contract has its own strike price and expiry date. This helps you compare options based on your market view and trading strategy.

An option chain contains several important fields that help you compare contracts.

1. Underlying asset

The underlying asset is the security or asset on which the option is based. It may be a stock, index, exchange-traded fund (ETF), or commodity.

2. Expiration dates

Option chains show the available expiry dates for each contract. The expiry date tells you when the option contract ends.

The time remaining until expiry can affect the option premium.

3. Strike prices

Strike prices, also called exercise prices, are the predetermined prices used in an option contract.

For a call, the strike price is the price at which the underlying asset may be bought. For a put, it is the price at which it may be sold.

4. Option type

Option chains mainly include:

• Call options: Give the buyer the right to buy the underlying asset.
• Put options: Give the buyer the right to sell the underlying asset.

5. Option symbols

Each option contract has a unique identifier or symbol. It can indicate details such as the underlying asset, option type, expiry, and strike price.

6. Bid and ask prices

The bid and ask prices show the current buying and selling quotes for an option.

• Bid price: Highest price a buyer is willing to pay.
• Ask price: Lowest price a seller is willing to accept.
• Bid-ask spread: Difference between the bid and ask prices.

7. Volume and open interest

Option chains usually show trading volume and open interest.

These figures can help you understand trading activity and liquidity.

8. In-the-money (ITM)

An option is in-the-money when it has intrinsic value.

• A call is ITM when the underlying price is above the strike price.
• A put is ITM when the underlying price is below the strike price.

An ITM option is not automatically profitable because the premium and other costs must also be considered.

9. At-the-money (ATM)

An option is at-the-money when its strike price is equal or very close to the current market price of the underlying asset.

ATM options generally have little or no intrinsic value. Their premium mainly reflects time value and implied volatility.

10. Out-of-the-money (OTM)

An option is out-of-the-money when it has no intrinsic value.

• A call is OTM when the underlying price is below the strike price.
• A put is OTM when the underlying price is above the strike price.

11. Implied volatility (IV)

Implied volatility reflects the market's expectation of future volatility over the remaining life of the option.

Higher IV generally results in a higher option premium when other factors stay unchanged.

12. Bid price

The bid price is the highest price a buyer is currently willing to pay for an option.

If you want to sell an option immediately, the bid shows what buyers are offering.

13. Bid quantity

Bid quantity shows how many option contracts buyers are willing to purchase at the displayed bid price.

It can help you understand buying interest at that price.

Additional Read: Difference Between Futures and Options

An option chain brings important contract and trading information together in one place.

Traders may use it for:

• Understanding market activity: Call and put data may show where trading activity is concentrated.
• Analysing strike prices: You can compare strikes with higher volume or open interest.
• Studying support and resistance: Traders sometimes use open interest concentrations as possible reference levels. These levels are not guaranteed.
• Planning strategies: Option-chain data can help when studying spreads, hedging, and other options strategies.
• Following changing data: Bid, ask, volume, open interest, and other values can change during the trading session.

Reading an options chart starts with checking the correct underlying asset, expiry, and strike price.

Some platforms may also show option payoff or profit-and-loss charts. These charts show how a position may perform at different prices of the underlying asset.

1. Identify the underlying asset and expiration date

Start by checking the underlying asset and the expiry date you want to analyse.

This helps ensure you are comparing the correct contracts.

2. Understand the axes

In a payoff or profit-and-loss chart, the horizontal axis usually represents different prices of the underlying asset.

The vertical axis may show profit or loss.

3. Understand the option lines

A chart may contain different lines for calls, puts, or strategy combinations.

Check the chart labels instead of relying only on colours.

4. Understand strike prices and sensitivity

Each option has a specific strike price. Different strikes can react differently when the underlying price changes.

Delta measures how sensitive an option's price is to changes in the underlying asset. However, the slope of a basic payoff chart should not automatically be treated as the option's current delta.

You can analyse an option chain or related chart by following these steps:

• Identify the strike price.
• Compare it with the current market price.
• Check whether the option is ITM, ATM, or OTM.
• Review the bid, ask, volume, open interest, and implied volatility.
• If using a payoff chart, see how changes in the underlying price may affect profit or loss.
• Use this information with your own risk assessment before considering trading decisions.

For example, if a share trades at ₹1,500, a ₹1,400 call is ITM, while a ₹1,600 call is OTM.

An option chain can be used in several ways.

1. Option selection

You can compare different strike prices and expiry dates to find contracts that match your market view.

2. Risk management

Options chains can help you compare calls and puts when considering strategies such as covered calls, protective puts, and collars.

3. Price discovery

Bid and ask prices show what buyers and sellers are currently quoting for an option.

4. Strategy development

Traders may compare different contracts when studying straddles, strangles, iron condors, and butterfly spreads.

5. Hedging

Options may be used to reduce some risk in an existing position.

For example, an investor holding shares may buy a put option to reduce some downside exposure if the share price falls.

6. Income generation

Some traders use covered calls by selling a call option against an existing holding.

The seller receives a premium but also takes on the obligations of the option contract.

7. Liquidity assessment

Volume, open interest, and the bid-ask spread can help you assess how actively an option contract is traded.

8. Timing decisions

You can compare different expiry dates to choose a contract that matches the period covered by your market view.

Consider a fictional company called Tech Innovators Ltd. (TIL).

Suppose TIL shares are trading at ₹1,500 per share.

The securities quoted are for example purposes only and not a recommendation.

Understanding the options chain

Suppose a ₹1,500 call has a bid of ₹20 and an ask of ₹25.

The bid shows what buyers are currently willing to pay, while the ask shows the lowest price at which sellers are willing to sell.

Analysing the options chain

Assume you expect TIL's share price to rise and are comparing these call options:

Suppose you buy the ₹1,500 call at ₹25.

Illustrative expiry breakeven: ₹1,525, before transaction costs and other charges.

This is calculated as ₹1,500 strike price + ₹25 premium. A price above ₹1,500 alone does not guarantee a profit because the premium paid must also be recovered.

An option chain brings important call and put option information into one place. It shows strike prices, expiry dates, bid and ask prices, volume, open interest, and implied volatility.

You can use this data to compare contracts, assess liquidity, understand market activity, and study different strategies. However, option-chain data cannot predict future prices with certainty, so it should be used along with your own trading plan and risk assessment.