Options Chain

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Options Tables & Options Chains

Most online brokers will display the information that investors are looking for, such as prices, in the form of a table. The exact format of the table, and the way the relevant details are displayed, will largely depend on what financial instrument is involved. For example, tables displaying stocks will look very different from tables displaying futures. The way these tables look may also vary from one broker to the next, although the information included will usually be very similar.

Any table that a broker uses to list the various information that pertains to options contracts is known simply as an options table. A more commonly used term is options chain. This is actually a type of options table, but it’s what brokers typically use to list options and their details.

These chains come in a variety of different formats, some of which are fairly basic and some of which contain a lot of detail. Traders may prefer to study one particular type of chain or they may look at a number of different types of chains, depending on what information they are trying to find and what sort of trade they are planning.

The range of options chains might vary at different online brokers, but there are few that are particularly common. On this page we provide details of three of the most widely used formats, as follows:

  • Basic Options Chain
  • Options Pricer
  • Options Strategy Chain

Basic Options Chain

The most basic options chain is the one that a lot of options traders would probably use the most. It’s certainly the most useful for beginner traders, and for those traders that use straightforward trading strategies that involve simply buying call options and/or put options with a view to selling them for a profit.

Chains of this type display call options and put options relating to the same underlying security on the same screen, with varying strike prices. Although there’s no standard format for these, they will typically list call options on the left hand side and put options on the right hand side. There will be a variety of columns, with each one containing relevant information to each of the listed contracts.

Even though the format and the information included can vary at different brokers, you can expect most basic options chains to have columns containing the following information:

Options Symbol: This is essentially the name of the option, and each option has its own symbol. It’s an indication of the underlying security, the expiration month, and the strike price. A good understanding of these symbols used to be quite important when trading options, but given that it’s so easy to see the relevant information using chains, it isn’t really that important anymore. When placing an order using an online broker you don’t have to enter the symbol of the contract you wish to trade, you simply click on the relevant contract.

Expiration Date: The expiration date of a contract can be displayed in one of the columns. However, it’s actually more common to show all the contracts with the same underlying security and same expiration date on one page, meaning that a column for the expiration date is unnecessary.

Strike Price: The strike price is usually displayed in the middle column of a basic chain, with call options and put options with the same strike price being displayed on the same row. As already mentioned, you can expect to see calls on the left and puts on the right.

Bid Price: The bid price is displayed to show you at what price you can sell the contract. Most options contracts are bought and sold in lots of 100, so you would usually multiply this price by 100 to get the actual price you would need to pay.

Ask Price: The ask price is displayed to show you at what price you can buy the contract, and the same rule regarding lots of 100 applies. The difference between the bid price and the ask price is the bid ask spread, and some chains will also display the size of the spread. The size of the bid ask spread will give you an idea of the liquidity of the option because, generally speaking, the smaller the spread the more liquid it is.

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Last Price: The last price shows you the last price at which the contract was transacted at. This isn’t a particularly relevant piece of information in options trading, because the last transaction could have been some time ago, or before a significant change in the price of the underlying security. The bid price and the ask price are much more accurate indicators of the current market value.

Volume: This piece of information shows how many of the option has been bought and sold during the current trading day. Volume is another good indicator of liquidity, because higher volume typically means higher liquidity.

Open Interest: Open interest relates to the number of open positions involving the option i.e. the number of contracts that have been written but that haven’tt yet been expired, exercised, or bought back by the writer. This is also useful for determining liquidity as high open interest will usually mean high liquidity.

Options Pricer

An options pricer is useful for looking at how market conditions may have an impact on the price of an option you are considering trading. They typically contain the same information as basic chains, with the addition of the five options Greeks. The options Greeks: Delta, Gamma, Theta, Vega, and Rho are used to measure price sensitivity in relation to changes in the price of the underlying security, volatility, time decay, and interest rate. This is a quite complex subject matter in its own right, and for a pricer to be of any use to you, you really need to fully understand the options Greeks and how to interpret them.

Because pricers contain more information than basic chain, they will typically display only calls or only puts on the screen. To compare calls to puts using a pricer you would need to switch between two separate tables.

Pricers are usually interactive and enable you to adjust certain variables in order to get a theoretical value of an option. What this means in practice is that you can get an estimate of what a contract may be worth under specific circumstances. You can make adjustments to variables that may affect the value of a contract, such as the number of days until expiration or the price of the underlying security. The pricer will then calculate a theoretical value of what the contract might be worth in those circumstances.

For example, if you felt that the underlying security would be trading at $25 with 20 days to expiration, then you could input those variables and then see what the various contracts would theoretically be worth in those circumstances. Obviously there is no guarantee that the theoretical value will be accurate, but it can certainly be a useful guide.

Once you know how to use pricers effectively, they can be very useful indeed. The fact that you can see all the relevant options Greeks can help you assess all the various risk parameters of any given contract before entering a trade. However, you do need a reasonably advanced knowledge and be able to use your own knowledge and opinions of current and future market conditions. It’s fair to say the beginner traders would be better suited to using basic chains until a decent amount of experience can be gained.

Options Strategy Chain

Options strategy chains are incredibly useful to traders that use any of the more advanced trading strategies. There are a number of standardized strategies that involve entering multiple positions, or legs, that are effectively combined into one position and planning such positions can involve a fair amount of work. You need to calculate the relevant cost of taking the position, the margin requirements, and other factors.

Many online brokers allow you to view strategy chains for most of these standardized strategies and these chains effectively do a number of the calculations for you and display some very helpful information.

For example, you might be planning to create a butterfly spread, which involves three separate trades. By looking at an strategy chain for a butterfly spread you would be able to view quotes and other information for each individual trade. As the butterfly spread is a debit spread (meaning there is an upfront cost involved) you will also be able to see the net cost of creating the spread. If you were creating a credit spread (meaning you received an upfront payment but would be exposed to potential losses), you would be able to see the margin needed for creating the spread.

As with pricers, strategy chains are really not for beginner traders, because a fair amount of knowledge is required. They are, however, of great benefit to more experienced traders who are using complex strategies on a regular basis. Although they don’t actually provide any information that you wouldn’t be able to calculate yourself, the time saving aspect of having those calculations done for you is potentially very valuable.

How to Read Options Chain – Explained with example

Published on Friday, June 1, 2020 by Chittorgarh.com Team | Modified on Wednesday, July 3, 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?”

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.

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:

On clicking the options chain, I was taken into this page. This is what we were looking for- the Option Chart.

This is the Option Chain Chart for NIFTY 50 expiring on JUNE 31, 2020. 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.

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

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.

We also see a part of data on both sides are highlighted in the pinkish shade and the rest is in white.

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.

How to Read an Option Chain

So how much cash can we generate selling options on the stocks that have passed our fundamental and technical screens? The answer lies in the option chain. This is a list that quotes option prices for a given security. For each underlying security, the option chain lists the various strike prices, option premiums, expiration dates and whether it is a call or put option. These lists can be found through your online discount brokerage or through various free websites such as:

The first time I looked at an option chain it reminded me of the first examination I took in Organic Chemistry…..I thought I was prepared for it but boy was I wrong! However, like most challenges (except perhaps organic chemistry) these hurdles can be overcome by simply doing your due-diligence and via repetition. For many experienced cover call writers, the knowledge gleaned from the option chain has become second nature and a source of information for our lucrative returns. Knowing how to read an option chain is an essential prerequisite to writing covered calls or any form of options trading. This article is geared to the novice options investor and those new to the BCI community.

Definition of an option chain:

An option chain is a method of quoting option prices through a list of all options for a given underlying security. The option chain reveals the various strike prices, expiration dates and identifies them as calls or puts.

The chart below shows what a typical option chain looks like for June 2020 expiration call options only for Mercadolibre, Inc. (NASDAQ: MELI):

The option chain

The components of the option chain (columns from left to right):

1- Strike price– Also called the exercise price. For call options, this is the price at which the option holder (buyer) can purchase the underlying security. The strike price usually trades in increments of $2.50 when under $25, in $5 increments when above $25, and in $10 increments for strike prices above $200. Some stocks and exchange-traded funds trade in $1 increments and others in $2.50 increments (above $25) as a result of a stock split. Additional exceptions will be addressed in future articles.

2- Symbol– These are the ticker symbols for options. They identify the underlying equity, the strike price, the expiration date and identify it as a call or put option. The option ticker symbol will always contain the ticker of the underlying security (in the above chart “MELI”).

3- Last– This is the price at which the last trade of that particular option was executed. For example, in the above chart, the last trade for $50 strike was executed @ $1.60.

4- Change– This column indicates how much the price of the option has risen or fallen from yesterday’s closing price. In this options chain, the $50 strike had increased $0.10 from the prior day’s closing price at the time the information in the chart was obtained.

5- Bid– The price at which the market makers are willing to buy your option, or in other words, the price you will receive when you sell an option (sell at the bid, the lower price).

6- Ask– The price at which market makers are willing to sell the option, or in other words, the price you will pay when you buy an option (buy at the ask, the higher price).

7- Volume (Vol) – The number of contracts traded for that option during that trading day. The higher this daily volume, the more “liquid” this option contract becomes vis a vis options with a lower daily volume. However, because each trading day brings a new daily volume, volume is not the most accurate measure of option liquidity. Furthermore, obtaining historical daily volume information for options is much more difficult than obtaining historical daily volume information for stocks.

8- Open interest– The open interest of an option contract is the number of outstanding options of that particular option which currently have not been closed out or exercised. For example, if the open interest for a particular call option is 1,000, this means that there are currently 1,000 active options that have either not been exercised or sold. Because an option is simply a contract, more contracts can be created every day, however the current open interest figure allows investors to gauge the extent of interest that investors have in a particular option contract. It is a cumulative figure, not a daily statistic as with volume. The higher the open interest, the more liquid the option contract is considered.

Example of using option chain to calculate ROO

Now that we are familiar with primary components of an option chain, let’s view an example of how we can use the option chain to calculate ROO or time value, using the option chain in the above chart for our example.

  • Assume we buy 100 shares of MELI @ $50. Our cost basis for the purchase of the underlying equity is thus $50/share for a $5,000 total investment.
  • Since we now own 100 shares of MELI, we can sell 1 call option (which equals 100 shares) of MELI in order to be “covered” (i.e. we own 100 shares of MELI, and sell someone else the right to buy 100 shares of MELI from us). For this example, assume we sell one $50 strike (one MELI call option with a strike price of $50) for $1.50. Remember, we always sell at the bid, not at the ask unless we negotiate a better price by “playing the bid-ask spread”.
  • We are selling an at-the-money option because current price of MELI is equal to the strike price of the option. Accordingly, the $1.50 option premium we receive consists only of time value (it does not have any intrinsic value), and as such, the entire $1.50 option premium is considered profit.
  • Our initial 1- month option return (ROO) is 150/5000 = 3% = 36% annualized

The Ellman Calculator

All the mathematics is calculated for you with the Basic Ellman Calculator and the Elite Calculator (free to premium members). Simply access an option chain and enter the stats into the appropriate tab of the calculator.

My new book:

Here is a link that gives some preliminary information:

Market tone:

Mildly good news on economic growth tempered fears of a second recession. Here are some this past week’s mixed economic reports:

  • Second quarter GDP increased by 1.3% slightly above the analysts expectations
  • The Conference Board’s index of consumer confidence rose only 0.2 points after the August low reading of 45.2
  • New home sales hit a 6-month low in August, dropping 2.3%
  • Personal income dropped 0.1% in August for the first time since October, 2009
  • Consumer prices increased by a modest 0.2%
  • Durable -goods orders fell less than expected in August, down 0.1% after a July gain of 4.1%

For the week, the S&P 500 was nearly flat, falling a modest 0.4% for a year-to-date return of (-) 8.7%, including dividends.

Despite a week when S&P 500 was flat, volatility remains a concern. Let’s view a 6-month chart of both:

S&P 500, VIX as of 9-30-11

Note the following:

  • Both the S&P 500 (green area) and the VIX (yellow area) have been in a trading range since the market decline in late July
  • The green arrow highlights the market decline and the red arrow demonstrates the corresponding spike in volatility
  • The S&P 500 has been in a trading range between 1125 and 125 and is currently at the lower end @ 1131
  • The VIX has been trading between 30-45 and is at the high end @ 42.96

A concern would be a bearish break out of these ranges on high volume. A bullish bounce is what we are looking for next week. As a result I am downgrading my outlook slightly to neutral but will remain fully invested. Investors new to this strategy may want to take an extremely cautious approach to this market.

Summary:

IBD: Market in correction

BCI: Neutral, selling in-the-money strikes on all new positions

Posted on October 1, 2020 by Alan Ellman in Option Trading Basics

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