Option Chain: Powerful Tools for Traders and Investors

1. What is an Option Chain?

An option chain, also known as an option matrix, lists all the available call and put options for a specific security. Each row represents an individual option contract with its strike price, expiry date, premium, and other key metrics. It helps traders compare multiple options to make informed decisions about trading strategies.

For example, on the NSE (National Stock Exchange of India), you can view the option chain for NIFTY 50, Bank NIFTY, or any stock. It displays both Call Options (CE) on the left and Put Options (PE) on the right.

2. Basic Terms in an Option Chain
a. Call Option (CE)

A Call Option gives the buyer the right, but not the obligation, to buy the underlying asset at a predetermined price (strike price) before or on the expiration date. Buyers of calls expect the underlying price to rise, while sellers (writers) of calls expect it to stay the same or fall.

b. Put Option (PE)

A Put Option gives the buyer the right, but not the obligation, to sell the underlying asset at a predetermined strike price before or on expiration. Buyers of puts expect the underlying asset’s price to fall, while sellers expect it to stay the same or rise.

c. Strike Price

The strike price is the price at which the option holder can buy (for a call) or sell (for a put) the underlying asset. Option chains list multiple strike prices around the current market price of the asset.

Example:
If NIFTY is trading at 22,000, the option chain may show strikes like 21,900, 22,000, 22,100, etc.

d. Expiry Date

The expiry date (or expiration date) is the date when the option contract ceases to exist. In India, options can have weekly or monthly expiries.

Weekly options expire every Thursday.

Monthly options expire on the last Thursday of the month.

After expiry, the option either becomes worthless (out-of-the-money) or is settled for profit/loss (in-the-money).

e. Option Type

Each contract specifies whether it is a Call (CE) or Put (PE). Traders choose the type based on their market outlook:

Bullish traders buy Calls or sell Puts.

Bearish traders buy Puts or sell Calls.

3. Option Chain Data Columns Explained

Each row in an option chain contains various data points. Let’s decode them one by one.

a. Last Traded Price (LTP)

The Last Traded Price is the most recent price at which the option contract was traded. It indicates the current market value or premium of the option.

Example:
If NIFTY 22,000 CE LTP = ₹120, that means the last buyer paid ₹120 for that call option.

b. Change and % Change

This shows how much the premium has moved compared to the previous trading session.

Change = LTP today – LTP yesterday

% Change = (Change / Previous LTP) × 100

It helps traders track intraday momentum and volatility.

c. Bid Price & Ask Price

Bid Price: The highest price a buyer is willing to pay.

Ask Price: The lowest price a seller is willing to accept.

The difference between them is the Bid-Ask Spread, which shows liquidity—narrow spreads indicate higher liquidity.

d. Bid Quantity & Ask Quantity

These represent how many contracts traders are willing to buy or sell at the bid or ask price.
Example:
If Bid Quantity = 1,200, it means traders want to buy 1,200 contracts at the bid price.

e. Open Interest (OI)

Open Interest is one of the most important metrics in an option chain. It represents the total number of outstanding (open) option contracts that have not been settled yet.

Rising OI indicates new positions being created.

Falling OI means positions are being squared off.

Interpretation Example:

Price ↑ and OI ↑ → Strong trend continuation (bullish).

Price ↓ and OI ↑ → Bearish trend strengthening.

Price ↑ and OI ↓ → Short covering.

Price ↓ and OI ↓ → Long unwinding.

f. Change in Open Interest

This shows how much the OI has changed compared to the previous session. It helps identify whether traders are entering new positions or exiting existing ones.

g. Volume

Volume indicates the number of option contracts traded during the day.
High volume shows active trading and high liquidity.

h. Implied Volatility (IV)

Implied Volatility reflects the market’s expectation of future volatility in the underlying asset.

High IV → Expensive premiums (greater uncertainty).

Low IV → Cheaper premiums (stable markets).

Traders use IV to assess whether options are overpriced or underpriced.

i. LTP vs. IV Relationship

If IV rises, option premiums generally increase (even if the underlying doesn’t move).
If IV falls, premiums tend to decline.

j. Intrinsic Value and Time Value

Each option premium consists of:

Intrinsic Value: The actual value if the option were exercised now.

Time Value: The extra value based on time to expiry and volatility.

Example:
If NIFTY = 22,100 and Call Strike = 22,000,
then Intrinsic Value = 100 (22,100 – 22,000).

4. In-the-Money (ITM), At-the-Money (ATM), Out-of-the-Money (OTM)
a. For Call Options:

ITM: Strike < Current Price

ATM: Strike ≈ Current Price

OTM: Strike > Current Price

b. For Put Options:

ITM: Strike > Current Price

ATM: Strike ≈ Current Price

OTM: Strike < Current Price

Traders often focus on ATM and nearby strikes, as they have higher liquidity.

5. Option Chain Analysis Techniques
a. OI Analysis

By comparing Call OI and Put OI, traders can estimate support and resistance levels:

High Call OI → Resistance zone (sellers active).

High Put OI → Support zone (buyers active).

b. Put-Call Ratio (PCR)

PCR = Total Put OI / Total Call OI

PCR > 1 → More Puts, bullish sentiment.

PCR < 1 → More Calls, bearish sentiment.

Traders use PCR as a contrarian indicator when extreme values appear.

c. Max Pain Theory

The Max Pain point is the strike price where the combined loss for option buyers is maximum and sellers benefit most.
At expiry, the underlying price often gravitates toward this level due to hedging and unwinding activity.

6. Real-World Example (NIFTY Option Chain)

Suppose NIFTY = 22,000, and we analyze the option chain:

Strike Call OI Put OI CE LTP PE LTP
21,900 25,000 10,000 160 70
22,000 30,000 28,000 120 120
22,100 45,000 20,000 80 160

Interpretation:

Strong Call OI at 22,100 → Possible resistance.

Strong Put OI at 22,000 → Possible support.

Market range: 22,000–22,100.

7. Advanced Option Chain Terms
a. Delta

Measures how much an option’s price moves for every ₹1 change in the underlying.

Call Delta: 0 to +1

Put Delta: 0 to –1

Example: Delta = 0.5 means the premium moves ₹0.50 for every ₹1 move in the asset.

b. Theta

Represents time decay—how much the option loses in value each day as expiry nears.

c. Gamma

Shows the rate of change of Delta. High Gamma means Delta will change rapidly with price movements.

d. Vega

Measures sensitivity of an option’s price to changes in volatility. High Vega means the option is more affected by IV changes.

e. Rho

Represents sensitivity of option price to interest rate changes.

8. Conclusion

Understanding option chain terms is essential for anyone involved in derivatives trading. The data helps traders:

Gauge market sentiment (bullish or bearish).

Identify support/resistance zones through OI.

Track volatility via IV.

Recognize trading opportunities through volume and price changes.

A skilled trader doesn’t just read numbers — they interpret the psychology behind them. With consistent analysis, the option chain becomes not just a data sheet, but a strategic roadmap for profitable trading decisions in dynamic markets like India’s NSE.