Option Chain. MarketCheese

Option chain is a representation of all current information on options trading for a certain security, usually in a form of a chart. An alternative name of an option chain, an option matrix, is also frequently used.

Put options and call options are presented in separate sections of an option chain and sorted by date, and all accessible data for the option type appears in relevant columns next to each other. The data gathered for an option chain usually includes expiration dates, actual strike prices, amount of trade, price changes with some additional details, which might vary depending on the provider.

Option chains differ from other types of informational listings on options trading, as they give a detailed and expanded record, especially compared to another popular listing, an option series, in which only strike prices or expiration dates are represented.

How Option Chain represents information

An option chain is a convenient and easily assessed system of presenting information on available option contracts. It is structured in a way that allows an experienced trader to analyze the data quickly and efficiently, and it is also friendly to beginners, as a form of a table is intuitive and provides an approachable representation of data.

Option chains are widely used by online resources for brokers and traders, with most of them having individual but generally similar configurations. Depending on the configuration, option chains provide essential indicators with or without additional measures such as mid-quotes.

An option chain for a certain security traditionally has the first column reserved for the contract name (an individual code for an option contract), and there are usually two independent charts for put and call options, with indicators listed in a particular order. Many online sources make it possible to range the available contracts by date and then specify the ranging by additional parameters, usually by strike price. A possibility to mark the option contracts which are currently In-The-Money, or At-The-Money, or Over-The-Money is also given by many providers, which is also considered useful for analysis and decision-making.

Some chunks of data might be obtained and presented in option chains in real time, but some measurements and values are gathered at the end of the trading day, which must be considered when using option chains for evaluation and planning. It’s commonly agreed that option chains are best to use for targeting and preparing for the following trading day.

Deciphering Option Chain

For a professional investor or a trader, the indicators in option chains are clear and gives enough material for independent work, while for a novice an option chain might seem too complex. Nevertheless, the structure of option chain is usually designed to help users get the required information, and with some support and studying it’s achievable for most users to figure out how to use it for their own needs.

Firstly, it’s essential to understand what information exactly is reflected in the option chain.

Measures and indicators presented in it, besides a contract name, are usually the following:

Strike price, the price of a security stated in the contract at which both sides agree to execute the contract.
Last traded price of an option contract.
Expiration date (or maturity period), which indicates the time when the contract is valid.
Open interest and its change (usually as two separate figures, and a higher open interest implies higher liquidity), which reflects the interest of market participants, and is measured by total number of outstanding contracts for a certain strike price.
Net change, showing the direction of price change for the underlying security of a certain option contract, which might be up, flat, or down.
Volume of trading, which is measured with a total number of contracts being traded on a certain day, and this is one more significant indicator of liquidity or illiquidity.
Implied volatility, indicating an expected change of prices.
Bid and Ask prices, representing the value quotes for buy and sell orders, respectively.
Bid and Ask quantities, which reflect the amount of buy and sell orders and indicate the demand and the availability of options.

All the abovementioned indicators represent essential information and might be used by traders simultaneously or separately to develop their own investing and trading strategies. But among those measurements and figures, there are four indicators which are considered by most traders as a good basis for evaluating the market conditions in general. Those indicators are the net change, the last traded price, bid and ask columns.

A person familiar with most of the terms, presented in an option chain, might concentrate on specific figures to analyze and make decisions. It is common for such users to examine price and interest changes quickly, and pay attention to the occasions when a significant level of liquidity is reached, or there is a dramatic change of price, with both phenomena being a clear significance of noticeable market change and a wake-up call.