Option Chain

An option chain is a table that lists every option available on an underlying, such as the Nifty, Bank Nifty or a stock, for one expiry date. Strike prices run down the middle, call options are shown on the left and put options on the right. For each strike, the chain shows the option’s price, open interest, volume and often its implied volatility.

It’s the main screen options traders use to pick strikes, see where positions are concentrated and read the market’s mood, all in one place.

What each column in an option chain means

Some option chains also show the option Greeks, such as delta, for each strike.

How to read an option chain: an example

Here’s a simplified option chain for an index at 20,000, with seven days to expiry (hypothetical numbers, OI in lakh):

Here’s how to read it, step by step.

1. Find the at-the-money strike. With the index at 20,000, the 20,000 strike is at the money, and its call and put cost about the same. Most trading usually happens around this strike.

2. Spot the in-the-money options. Calls below the current price (19,800 and 19,900) and puts above it (20,100 and 20,200) are in the money. That’s why they’re more expensive. Many option chains shade these rows to make them easy to see.

3. Look for the biggest open interest. The largest call OI is at 20,200 (52 lakh) and the largest put OI is at 19,800 (48 lakh). Option writers dominate index options, so heavy call OI is often read as resistance, and heavy put OI as support. This chain suggests traders expect the index to stay between about 19,800 and 20,200 until expiry. A large concentration like this is called an OI wall.

4. Work out the put-call ratio. Total put OI is 127 lakh and total call OI is 140 lakh, so the put-call ratio is 127 ÷ 140 = 0.91, in the neutral zone.

5. Estimate the expected move. Adding the at-the-money call and put gives the price of a straddle: ₹144 + ₹144 = ₹288. That’s roughly the move the market is pricing in by expiry, so the expected range is about 19,712 to 20,288. Here it lines up closely with the 19,800 to 20,200 range suggested by open interest.

Reading change in OI

Open interest shows where positions are; change in OI shows what traders did today. Read it together with the premium:

• OI up, premium down at a strike means fresh writing. For a call, that’s short buildup in calls, which strengthens resistance at that strike. For a put, fresh writing strengthens support.
• OI up, premium up means fresh buying, or long buildup.
• OI down means positions are being closed, which can weaken a support or resistance level that looked strong earlier in the day.

For example, if call OI at 20,200 jumped sharply today while its premium fell, writers were adding positions there, and the resistance has become stronger. If that OI started falling as the index climbed towards 20,200, writers would be leaving, and the level could give way.

Other things an option chain can tell you

• Volatility skew. If the chain shows IV, out-of-the-money puts usually carry higher IV than out-of-the-money calls in index options, because traders pay more for downside protection.
• Max pain. The strike where option buyers as a group would lose the most at expiry can be worked out from the chain’s open interest. See max pain.
• Liquidity. Strikes with high volume and tight bid-ask spreads are easier to enter and exit. Far-away strikes often trade thinly.

Common mistakes when reading an option chain

• Reading OI without the price. Rising OI can mean fresh buying or fresh writing. You need the premium’s direction to tell which.
• Treating OI levels as fixed. Support and resistance from OI shift during the day as positions are added and closed. A level that looked strong in the morning can disappear by the afternoon.
• Mixing up expiries. An option chain shows one expiry at a time. OI in the weekly chain and the monthly chain can tell different stories, so check which one you’re looking at.
• Trusting thin strikes. On strikes that barely trade, the last traded price can be stale and the bid-ask spread wide. Use the bid and ask, not just the LTP.

Index and stock option chains

Index option chains, such as for the Nifty and Bank Nifty, usually have the most strikes, the most open interest and the tightest spreads. Stock option chains tend to be thinner away from the current price. Stock options are also physically settled, so in-the-money positions held to expiry end in delivery of shares. See index option and stock option for the differences.

See an option chain live

You can see a live option chain, with premiums, open interest and volume for every strike, on Stolo’s Nifty option chain and Bank Nifty option chain. For deeper analysis across strikes and expiries, use Stolo’s option chain analysis, and to study how a chain changed through a past session, see option chain replay.