How to read Option Chain?

How to read Option Chain?

  1. Option Types - There are two types of option contracts - Call, and Put. Premium of Call options increases with the increase in price of the underlying, while the premium of the Put options decreases with the increase in price of the underlying, and vice versa.

  2. Strike Price - The price at which buyers and sellers of option contracts agree to exercise the contract. If the Call option expires with the price of the underlying lower than the strike price, it will become worthless. If the Put option expires with the price of underlying higher than the strike price, it will become worthless. 

  3. OI - Open interest is the total number of outstanding derivative contracts, such as options or futures that have not been settled for an asset.

  4. LTP - Last traded price of the option contract

  5. IV - IV is an abbreviation for Implied Volatility. A higher IV means the potential for higher swings in prices and low IV means smaller swings. IV doesn't tell you about the direction, whether upward or downward.

  6. Volume - It is the total number of contracts of an option traded in the market. Volume can help you understand the interest of traders in a contract.

  7. Greeks - Option Greeks refer to a set of calculations you can use to measure different factors that might affect the price of an options contract. There are 4 types of option greeks commonly used - Delta, Theta, Vega, Gamma

    1. Delta - It measures the change in price of an option contract with Re.1 change in price of the underlying asset. Value of delta ranges between 0 and 1.

    2. Theta - Theta is the measure of the sensitivity of the option price to the option’s time to maturity. If the option’s time to maturity goes down by one day, everything else remaining the same, the option’s price will change by theta amount.

    3. Vega - Vega measures the sensitivity of an option's price to the volatility of the underlying asset. If the volatility of the asset changes by 1%, everything else remaining the same, the option price will change by Vega amount. An increase in vega generally corresponds to an increase in the option value.

    4. Gamma - Gamma is a measure of the delta’s change relative to the changes in the price of the underlying asset. If the price of the asset changes, the option’s delta would change by Gamma amount.

  8. Illiquid Contract () - The contracts that have not been traded in the last 5 minutes are marked as illiquid contracts. It is indicated by the crossed water droplet icon().

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