Option Chain Terms

1. Introduction: What is an Option Chain?
An Option Chain (also called an options matrix) is like a detailed menu for all the available Call and Put options of a particular underlying asset (such as a stock, index, or commodity) for different strike prices and expiry dates.

If you’re a trader, the option chain is where you see all the numbers that decide your trading choices — prices, volumes, open interest, and Greeks.
Think of it as the cockpit of an airplane — lots of data, but if you know what each dial means, you can navigate smoothly.

Example:
If you open the NSE India website and look at the NIFTY Option Chain, you’ll see something like:

Strike Price CALL LTP CALL OI PUT LTP PUT OI
19500 ₹250 1,20,000 ₹15 80,000
19600 ₹180 95,000 ₹25 90,000

This is a simplified snapshot — in reality, there are more columns like bid-ask prices, implied volatility, and Greeks.

2. Core Sections of an Option Chain
An option chain is split into two halves:

Left Side: Call options (bullish contracts)

Right Side: Put options (bearish contracts)

Middle: Strike Prices (common to both)

Here’s how the layout looks visually:

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CALL DATA | STRIKE PRICE | PUT DATA
-----------------------------------------------
OI Chg OI LTP IV | 19500 | IV LTP Chg OI OI
OI Chg OI LTP IV | 19600 | IV LTP Chg OI OI
3. Option Chain Key Terms
Let’s go deep into each term one by one.

3.1 Strike Price
The predetermined price at which you can buy (Call) or sell (Put) the underlying asset if you exercise the option.

Every expiry has multiple strike prices — some above the current market price, some below.

Example:
If NIFTY is at 19,500:

19,500 Strike → ATM (At The Money)

19,600 Strike → OTM (Out of The Money) Call, ITM (In The Money) Put

19,400 Strike → ITM Call, OTM Put

3.2 Expiry Date
The last trading day for the option. After this date, the contract expires worthless if not exercised.

In India:

Index options (like NIFTY, BANKNIFTY) → Weekly expiries + Monthly expiries

Stock options → Monthly expiries

3.3 Call Option (CE)
Gives you the right (not obligation) to buy the underlying at the strike price.

Traders buy calls when they expect the price to rise.

3.4 Put Option (PE)
Gives you the right (not obligation) to sell the underlying at the strike price.

Traders buy puts when they expect the price to fall.

3.5 LTP (Last Traded Price)
The most recent price at which the option contract traded.

Reflects the current market value of that option.

3.6 Bid Price & Ask Price
Bid Price: Maximum price buyers are willing to pay.

Ask Price: Minimum price sellers are willing to accept.

The gap between them is called the Bid-Ask Spread.

3.7 Bid Quantity & Ask Quantity
Bid Quantity: Number of contracts buyers want to purchase at the bid price.

Ask Quantity: Number of contracts sellers are offering at the ask price.

3.8 Volume
Total number of contracts traded during the current trading session.

High volume indicates strong interest and liquidity.

3.9 Open Interest (OI)
Total number of outstanding contracts that haven’t been closed or squared off.

Shows market positioning:

High OI in calls → Bearish or range-bound expectation.

High OI in puts → Bullish or range-bound expectation.

3.10 Change in Open Interest (Chg OI)
How much OI has increased or decreased from the previous session.

Used to detect fresh positions or unwinding.

3.11 Implied Volatility (IV)
Market’s expectation of future volatility.

Higher IV → Option premiums become expensive.

Lower IV → Options are cheaper.

3.12 Greeks in the Option Chain
Greeks measure how sensitive the option price is to changes in market factors:

Delta → Price change sensitivity to the underlying asset.

Gamma → Rate of change of Delta.

Theta → Time decay rate of the option price.

Vega → Sensitivity to changes in volatility.

Rho → Sensitivity to interest rate changes.

3.13 ATM, ITM, and OTM
ATM (At The Money): Strike price is equal to the current price.

ITM (In The Money): Option has intrinsic value.

OTM (Out of The Money): Option has no intrinsic value (only time value).

3.14 Premium
The price you pay to buy an option.

Premium = Intrinsic Value + Time Value.

3.15 Break-Even Point
Price level at which your option trade starts becoming profitable.

3.16 PCR (Put-Call Ratio)
Formula: PCR = Put OI / Call OI

High PCR (>1) → Bullish sentiment.

Low PCR (<1) → Bearish sentiment.

4. How to Read the Option Chain
Reading an option chain is about spotting where traders are placing their bets.

Step-by-step:

Identify ATM Strike.

See highest OI in Calls and Puts — this shows resistance and support levels.

Look at Change in OI to spot fresh activity.

Check IV movement for volatility expectations.

Use Greeks for risk assessment.

Example Analysis:
NIFTY at 19,500

Highest Call OI: 19,800 (Resistance)

Highest Put OI: 19,400 (Support)

PCR = 1.2 → Mildly bullish

5. Practical Use Cases
Finding Support & Resistance:
Highest Put OI → Support
Highest Call OI → Resistance

Spotting Breakouts:
Sudden drop in Call OI at resistance → Possible breakout.

Volatility Trading:
High IV → Consider selling options.
Low IV → Consider buying options.

6. Advanced Option Chain Insights
Long Buildup: Price ↑, OI ↑ → Bullish.

Short Buildup: Price ↓, OI ↑ → Bearish.

Short Covering: Price ↑, OI ↓ → Bullish reversal.

Long Unwinding: Price ↓, OI ↓ → Bearish reversal.

7. Common Mistakes to Avoid
Ignoring IV before entering trades.

Reading OI without considering price movement.

Not adjusting for upcoming news or events.

Trading illiquid strikes with wide bid-ask spreads.

8. Conclusion
An option chain is not just a table of numbers — it’s a real-time X-ray of trader sentiment.
By understanding every term — from LTP to IV, from Delta to PCR — you can turn raw data into actionable insights.