An option chain displays the available options for an underlying security. Option chains list all the call options and put options for each expiration. Each strike price includes the premium, bid price, ask price, and bid-ask spread for a given expiration date. The information is typically listed in columns.
Many option chains also include values for volume, open interest, and common Greeks, such as delta and theta.
Option chains are also known as “option matrix” because they allow you to visualize all the possible combinations of strike prices and expirations for each type of option to create positions and option strategies.
Options chains provide an organized, visual display of available options and are shown in real-time. Prices and the different variables change as buyers and sellers execute trades in the market.
Reading an options chain
Option chains are typically arranged in ascending order by strike price so you can quickly identify the options that are in-the-money or out-of-the money. You can also assess implied volatility, which is the estimate of the underlying security’s implied move before expiration. Higher implied volatilities typically lead to higher premiums.
The option chain lists several key elements:
- The underlying stock or security
- The expiration date
- The strike price
- The premium (bid/ask spread)
- Open interest (outstanding open contracts)
- Volume (total daily contracts traded)
Analyzing Option Chains
Option chains are a great tool for analyzing potential trades and estimating the probability of success. Analyzing an option chain lets you estimate how much money you can make or lose before entering a trade.Â
The bid price is the highest price that someone is willing to pay for an option contract at any given time. The ask price is the lowest price that someone is willing to sell an option contract at any given time. For example, if an option has a $60 strike with a $2.50 ask price and a $2.20 bid price, the spread is $0.30.
Using an Option Chain to Select Trades
Single-leg option strategies like long calls and long puts have unlimited profit potential, and their risk is defined to the premium paid to enter the trade.
You can also create multi-leg strategies, such as vertical spreads, by selecting different strike prices directly on the option chain.
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