Options Chains: What Do They Mean?
Aug 18, 2022 By Triston Martin

An options chain or matrix lists all possible option contracts for given security. Information for all listed puts and calls associated with a single underlying asset is shown at a certain maturity time. Options on the chain are typically divided into the call and put contracts with defined times till expiration.

Unlike an options series or cycle, which only lists the possible strike prices or expiration dates, an options chain provides a far more comprehensive quote and pricing data.

QUESTIONS FOR REVIEW

The "options chain" is a table that lists the various option prices for a specific underlying asset.

The options chain matrix displays the current price, trading volume, and highest bid and offer for calls in an options series in real-time and is typically organized by expiration date.

When an option is exercised, the investor will acquire shares of stock at the strike price.

An Understanding of Option Chains

Option chains are the most understandable form of data visualization for everyday investors. For the sake of clarity, the option prices are listed sequentially. An option's premium can be found by following the relevant expiration dates and strike prices. Depending on the data presentation, an option chain may include bid-ask quotations or mid-quotes.

The vast majority of online brokers and stock trading systems present option quotations as an option chain, with either real-time or delayed data. The chain display makes it easy to swiftly check the open interest, price, and volume. Traders can narrow in on just the options they need to implement a given options strategy.

Traders may quickly examine a certain asset's volume, volatility, and interest by strike price and maturity month. Next, sort the information by strike price, from lowest to highest, and finally, by expiration date, from soonest to later.

What the Option Chain Diagram Means for You

The terminology used in the options matrix doesn't require much of an explanation. A skilled user can quickly examine the market's price movements and pinpoint high and low liquidity pockets. If you want to make money in the market, you need this information.

Traders compile a complete market picture from the information in these four columns. The "Last Price," "Net Change," "Bid," and "Ask" columns are all included.

The latest price that has been reported is indicated in the last pricing column.

The net change column displays the size (positive, negative, or unchanged) and direction (up, down, or flat) of the price difference between the current transaction and the prior one.

A trader's potential profit from selling an option at that moment is displayed in the bid column. You can see the asking price in the ask column if you want to buy the option.

Examining the columns that come after those mentioned above four will help you better understand the depth of the market for a certain option and the level of commitment among traders at each price level.

A day's trading volume, or the number of contracts that change hands, is one measure of an option's liquidity. Open interest measures how committed participants are to a market by tallying all options in circulation across all strikes and expiration dates.

The number of open positions changes throughout the day. Every day, at the closing of trade, market makers publish the day's trading activity for the option chain. The option chain matrix is particularly useful for planning trades for the following trading day.

Does the options chain follow a predetermined structure?

Each calls and put section of an options chain has a distinct purpose. Calls are displayed on the left and put on the right. Call contracts compel the buyer to sell and provide the seller the option to purchase. Put option buyers can make a sale, whereas put option sellers are obligated to make a purchase.

The strike price is located in the middle column of an option chain. That's the fee you'll have to pay if you decide to "call" or "put" the option.

The choices chain's default ordering places the options with the earliest expiration dates at the top. The contract will only last as long as it is in effect. To illustrate this point, consider the popularity of death countdowns (DTE).

Any choices highlighted in green are good bets right now, while any choices highlighted in red are losing money. The call option is "in-the-money" when the underlying asset's current price is less than the strike price. The put option is lucrative if the underlying asset price exceeds the strike price. It's easy to tell what's in, what's out, and how close something is to the money, thanks to the usage of color.

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