How to read an Options Chain Data in nse? - with example

In today's article, We will learn how to read the Option Chain Data.

Friends, it is very important for any new Option Chain trader to know what the Option Chain Data is and how to read it.

The Option Chain Data contains some series of important information that help an option trader to make profitable trade decisions.

For any profitable trade, it is very important to read and analyze the information given in Option Chain Data.

This article will help you understand the Option Chain Data that contains some series of important information.

What is Option Chain Data?

The Option Chain Data is a list of call and put contracts of strike prices of a particular underlying stock/index for a specific expiration period. It lists various information of CALL & PUT options like; strike prices, open interest, IV, volume, ask and bid prices & quantity, contract premium, contract expiry date.

The Options Chain chart is where the option traders get the current market value of an option contract during trading hours. The prices in the option Chain will change throughout the trading day based on stock price movement, volatility and time.

How to open the Option Chain Data of any stock or Index.

Now let's see step by step,

1. Go to www1.nseindia.com
The site will open like this.

2. In the search drop-down select equity derivative & enter any script.
I am entering Banknifty, this will take us to this page. This is how Option Chain Data looks like.

3. Now click on Option Chain

The Option Chain Data is divided into two parts, CALL & PUT options with a strike price in the middle of it.

On both sides of the strike price under CALL & PUT, we have information such as LTP, IV, OI, Volume.

Understanding the components of the Option Chain.

The options below are different components of the series, allowing each to be understood one by one.

CALL: Call option is the contract that gives us the right to Buy but not the obligation to buy the underlying in the future at a fixed price & within a fixed date. this contract gives the right to buy but it is not compulsory for one to buy the underlying.

PUT: PUT option is the contract which gives us the right to Sell but not the obligation to Sell the underlying in the future at a fixed price & within a fixed date. this contract gives the right to sell but it is not compulsory for one to sell the underlying.

Strike Price: Strike price is the anchor price at which two parties (Buyer & Seller) agree to enter into an agreement. For all the “Call/Put” option the strike price represents the price at which the stock can be bought/sell on the expiry date.

OI (Open interest): It is the data that shows the interest of a trader in a particular strike price. the total number of contracts that are still open or not square off for a particular strike price. the more no of open interest means higher chances of liquidity in that strike price.

Change in OI: This tells us that the Number of contracts square off or closed during the current trading day compared to the previous trading day.

Volume: It is the total number of contracts for a particular strike price traded during the trading day. It also indicates the interest of a trader at a particular strike price.

IV (Implied Volatility): It estimates the possible fluctuation in the premium of a particular strike price in either direction. It never indicates the direction of price movement. This represents in the Geeks of every option contract as VEGA. This is one of the very important elements in the calculation of the option premium.

LTP (Last traded price): It is the price of the last traded option contract.

Bid Price & Qty: it is Price & Qty at which one willing to buy an option.

Ask Price & Qty: it is Price & Qty at which one willing to sell an option.

Understanding the ITM, ATM & OTM

This are the highlighted shaded in lemonchiffon color in Option Chain Data

ITM (In-the-Money): The shaded region in the options chart indicates the ITM. A Call option is in ITM if its strike price is lower than the current market price of the underlying asset. A Put option is in ITM if its strike price is higher than the current market price of the underlying asset. As you have seen, more the ITM options, more the expensive option.

ATM (At-the-Money): When a strike price of both Call & Put equal to current market prices of the underlying asset then is it called ATM option.

OTM (Out-of-the-Money): A Call option is in OTM if its strike price is higher than the current market price of the underlying asset. A Put option is in OTM if its strike price is lower than the current market price of the underlying asset. As you have seen, more the OTM options, less the expensive option.

Examples 

The picture above is the Option Chain for BANKNIFTY with Expiration Month of Apr 09.

In this example, the closing price of BANKNIFTY is 19913.60. This price is in between Strike Price 19900 and 20000.

Therefore, for Calls (at the left of the Strike Price column), the Strike Prices from 19900 or lower are ITM options, while the Strike Prices from 20000 or higher are OTM options.

And for Puts (at the right of the Strike Price column), the Strike Prices from 19900 or lower are OTM options, while the Strike Prices from 20000 or higher are ITM options.

Suppose you want to buy 2 contracts of BANKNIFTY Apr 09 Call at strike price 19700, the option price will be Rs. 214.70 (Ask Price), hence you need to pay: Rs.8,588 (= Rs.214.70 x 2 contract x 20 shares/contract).

Suppose you want to sell 2 contracts of BANKNIFTY Apr 09 Call at strike price 19700, the option price will be Rs. 212.05 (Bid Price), as such you will receive: Rs.8,482 (= Rs.212.05 x 2 contract x 20 shares/contract).

As you can see, if you buy an option and sell it immediately, you will lose Rs.106 (= 8588 – 8482) due to the Bid-Ask Price Spread.

Complete knowledge and understanding of the Option Chain Data gives you a lot of insight and helps in making trade decisions & strategies.