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Option Chain Part1

An option chain is a listing of all available option contracts, including puts and calls, for a given security. It displays strike prices, maturity dates, and pricing data. Option chains allow traders to quickly view trading activity, open interest, and prices across different options. Key information in an option chain includes the last price, net price change, bid price, and ask price for each option contract.

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629 views

Option Chain Part1

An option chain is a listing of all available option contracts, including puts and calls, for a given security. It displays strike prices, maturity dates, and pricing data. Option chains allow traders to quickly view trading activity, open interest, and prices across different options. Key information in an option chain includes the last price, net price change, bid price, and ask price for each option contract.

Uploaded by

ramyatan Singh
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Option Chain

By AKHILESH GANTI
Updated May 14, 2019
What is an Option Chain?
An option chain, also known as an option matrix, is a listing of all available option contracts,
both puts and calls, for a given security. It shows all puts, calls, strike prices, and pricing
information for a single underlying asset within a given maturity period.

Understanding Option Chain


Option chains are probably the most natural form of presenting information for most retail
investors. The option quotes are listed in an easy-to-understand sequence. Traders can find
an option premium by following the corresponding maturity dates and strike prices. Depending
on the presentation of the data, bid-ask quotes, or mid quotes, are also displayable within an
option chain.

The majority of online brokers and stock trading platforms display option quotes in the form of
an option chain using real-time or delayed data. The chain display allows quick scanning of
activity, open interest, and price changes. Traders can hone in on the specific options required to
meet a particular options strategy.

Traders may quickly find an asset's trading activity including the frequency, volume of trading,
and interest by strike price and maturity months. Sorting of data may be by expiration date,
soonest to furthest, and then further refined by strike price, from lowest to highest.

KEY TAKEAWAYS

 An option chain, also known as an option matrix, is a listing of all available option
contracts, both puts and calls, for a given security.
 The option chain matrix is most useful for the next trading day.
 Traders typically focus on 'last price', 'net change', 'bid' and 'ask' columns to assess
current market conditions.
Decoding the Option Chain Matrix
The terms in an options matrix are relatively self-explanatory. A skilled user can quickly
decipher the market regarding price movements and where high and low levels
of liquidity occur. For efficient trade executions and profitability, this is critical information.

There are four columns of information that traders focus on to assess current market conditions.
The columns are Last Price, Net Change, Bid, and Ask.

1. The last price column displays the latest trade price captured and reported.
2. Information in the net change column reflects the direction (up, down, or flat) for the
underlying asset, as well as the amount of price variance from the previous trade.
3. Review of the bid column shows information about how much a trader could expect to
receive on the sale of that option at that time-frame.
4. Information about how much the trader can expect to pay to purchase that option at that
time appears in the ask column.

In the columns following the four listed above, you will find important information to gauge
market size for a given option and how traders are committed at each price level.

Trading volume, or the number of contracts that change hands in a given day, indicates how
much liquidity there might be for any given option. Open interest measures the total number of
options outstanding on each strike and maturity, allowing you to gauge the scale of market
commitment.

The real level of open interest varies intraday. Market makers report the information shown in
the option chain only at the end of each trading day. The option chain matrix is most useful for
the next trading day.

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Related Terms

How Options Work for Buyers and Sellers


Options are financial derivatives that give the buyer the right to buy or sell the
underlying asset at a stated price within a specified period.
more
Exchange-Traded Option Definition
An exchange-traded option is a standardized derivative contract, traded on an
exchange, that settles through a clearinghouse, and is guaranteed.
more
Volatility
Volatility measures how much the price of a security, derivative, or index
fluctuates.
more
Quadruple Witching
Quadruple witching refers to a date that entails the simultaneous expiry of stock
index futures, stock index options, stock options, and single stock futures.
more
Uncovered Option Definition
An uncovered option, or naked option, is an options position that is not backed by
an offsetting position in the underlying asset.
more
How Delta Hedging Works
Delta hedging attempts is an options-based strategy that seeks to be directionally
neutral.
more
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