What is Option Chain?
The term “option chain” refers to the list of all available option contracts for any given asset, such as stock, commodity, index, currency, etc. The list captures both put and call options available for a single underlying asset along with the other associated information, like strike prices, expiry date, open interest, etc. An option chain is usually advantageous for traders as it helps them in analyzing the market and acting appropriately as well as quickly.
Explanation of Option Chain
For most traders, the option chain is the best form of representing all the information pertaining to an asset in a single window. The listing of the option quotes is done in an easy-to-understand manner. Traders are able to access the option chain easily for any given asset through various websites (e.g.: NASDAQ). Once the data is retrieved, the traders then analyze the data, such as bid-ask quotes, mid quotes, strike price, etc., to estimate the price movement of the asset for a future date and this is how an option chain works.
Features of Option Chain
Some of the major features of the option chain are as follows:
- Contract name: It is the unique name given to the contract for the purpose of identification.
- Last trade date: It precisely specifies the date and time of the last trade of the given security.
- Strike price: It is one of the most important information about an option contract. Strike price refers to the agreed price at which the buyer of the option will buy or sell the security on an agreed future date.
- Last traded price: It is the price at which the given security (of the option contract) was last traded, mostly the closing price of the stock at the end of the day.
- Bid price: It captures the highest bid for the option contract in the market. In other words, it is the best price that a trader is ready to pay to purchase the option contract.
- Ask price: It captures the highest ask placed by the seller in the market for the option contract. In other words, it is the best price at which a trader is ready to sell the option contract.
- Change in last traded price: It shows the difference between the latest last traded price and the previous last traded price of the option contract. The change in considered to be positive if the latest last traded price is higher than the previous last traded price and vice versa.
- Volume: It indicates the number of contracts of the given option contract that have been traded in the market during a particular period of time. Higher volume indicates better liquidity of the option contract in the market.
- Open Interest: It represents the number of open positions for a given option contract. Open position means that it is yet to be closed out, exercised, or expired.
Example of Option Chain
Let us take the example of Apple Inc. (Nasdaq: AAPL) stock to offer a snapshot of how the option chain looks for a real-life entity.
The screenshot shows the option chain for Apple Inc. with the following details:
- Apple Inc. is currently trading at $106.84 marked with a light blue box.
- The expiry date of the option chain is September 25 marked with the blue box.
- The strike prices of both call and put options range from $96.25 to $108.75 marked with a red box.
- The details of call options have been highlighted with a yellow box
- The last trading prices of the call options vary in the range of $0.41 to $4.25
- The highest traded volume of 27,009 and highest open interest position of 3,176 is at the strike price of $108.75
- The bid-ask spread varies from $0.09 to $0.35
- The highest change in the last trading price occurred at a strike price of $98.75
- The details of put options have been highlighted with a green box
- The last trading prices of the put options vary in the range of $2.22 to $11.10
- The highest traded volume of 36,007 and highest open interest position of 14,477 is at a strike price of $100.00
- The bid-ask spread varies from $0.03 to $0.20
- The highest change in the last trading price occurred at a strike price of $108.75
How to Find the Option Chain?
Now, let us look at the step by step instructions that need to be followed in order to find the option chain of any given stock.
- Go to any stock market website, such as Nasdaq.
- Type the name of the stock in the search bar on the right hand side of the page.
- Then the page for the given stock will appear with all the statistics. Now, go to the right hand side of the page and click on “Option Chain”.
- Finally, the page with all the details pertaining to the option contract of the given stock will open as shown and explained in the previous section.
Uses of Option Chain
Option chain of a given security is used for the following:
- It helps traders in the evaluation of liquidity and depth of an option contract at any particular strike price.
- It can be used as an advance warning system of sharp moves in the index.
- It can be very useful in building an option strategy, such as strangles, at different strike prices.
Some of the major advantages of option chain are as follows:
- It gives a snapshot of all the important statistics pertaining to a stock option in a single window.
- It can be further analyzed to draw meaningful insights about the stock and determine its movement in the near future.
So, it can be seen that option chain gives a sneak peek of the future of stock by providing various information about all its available option contracts. However, the expertise to read between the lines of the option chain can only be gained over a period of time.
This is a guide to Option Chain. Here we also discuss the introduction and how to find the option chain? along with examples and features. You may also have a look at the following articles to learn more –