The option chain contains key elements that you must be aware of to read it effectively.
- The columns run vertically and represent the different strike prices.
- The rows are horizontal and represent calls or puts.
- The Contract column shows the expiration date of the option contract.
- The Last Price is the price of the last traded option.
- The Bid Price is the price a trader would receive for selling an option.
- The Ask Price is the price a trader would pay to buy an option.
- Open Interest shows the total number of active contracts in circulation.
- Volume displays the total number of traded options in the current period.
Interpretation of the Option Chain
Reading the Option Chain NSE India follows a simple but essential rule. Calls are on the left, puts on the right, and strike prices are in the middle, with the at-the-money option`s strike price usually highlighted.
By looking at the call section, you can determine the demand for the underlying asset since calls give traders the right to buy, while puts give traders the right to sell. If many calls are bought, it signifies high bullish activity, while if many puts are bought, the sentiment is bearish.
By checking the put column, you can ascertain the number of puts traded and the demand for selling the underlying asset. If there are more puts than calls, the market sentiment is negative.
The Open Interest column of the Option Chain is crucial because it shows the total number of active contracts in circulation. A high open interest implies that the asset is popular, while a low level means that it is not.
Lastly, the volume column displays the number of stocks traded within the day.
Using the NSE Option Chain to Make Informed Trading Decisions
Analyzing Open Interest and Volume are two significant components that can help traders more accurately predict an asset’s price movement. By analyzing the open interest and volume, traders can determine how the market feels about a given asset and act accordingly.
If a stock has a high open interest and volume, it means that it is on the rise and has a positive market sentiment. In such cases, traders should buy the stock to take advantage of it.
Conversely, if a stock has a low open interest and volume, it signifies that there is minimal interest from buyers and sellers. Traders should avoid such an asset and wait until there is a significant level of activity or until they receive a signal based on their strategies.
Applying Option Chain Strategies
Option chain strategies refer to the ways traders use the data collected from the Option Chain to predict future price movements. This sub-section highlights some popular Option Chain strategies.
Straddle Strategy:
This is an options strategy that involves buying both puts and calls with the same strike price and expiration date. Traders use this strategy when they are unsure of the direction the stock will move.
Iron Butterfly Strategy:
This options trading strategy targets a specific expiration date and price range, where traders profit from a significant price movement by buying both puts and calls covering the range of movement.
Bear Call Spread Strategy:
This strategy is used when investors expect the price of an asset to fall. Here, traders sell a call option and immediately open another with a higher strike price.
Conclusion
Understanding the NSE Option Chain is a critical skill for traders who want to make informed decisions and increase their chances of success in the stock market. By learning how to read the option chain and interpret its elements, traders can identify high-volume trades, anticipate price movements and market sentiment, and implement option chain strategies to their advantage. With the knowledge and application of this skill set, traders can navigate the NSE Option Chain like a pro.
