What is the first thing that you consider when trading equity shares? You may be like many traders who look at the price of the stock and decide quickly whether to buy, sell, or hold the stock. When it comes to trading options, the price of the option is not the only thing you should consider.
The first step in implementing and finding profitable trading strategies is to analyze the options chain. Are you unsure what an options chain is or what it can tell you? This article will cover the essentials and explore advanced trading tools to complement the information contained in the NSE option chain.
An options chain: what is it?
A list of all option contracts for a specific security or asset, which are currently traded on the market, is called an options chain. Also known as an option matrix, it is a comprehensive list of all the options contracts for a particular security or underlying asset that are currently available on the market. You should look at the options chain before you build your options trading strategy and plan.
Select the Option Type:
A matrix or options chain is divided into sections that are based on the type of options contract, namely call options or put options. Call options give the holder the option to buy the underlying asset at a specific price before a period expires. Put options, on the other hand, give the holder the option to sell or transfer the asset at a set price in a specified timeframe.
* Strike prices:
The strike price is the price that the option holder will pay to exercise the contract before expiry. The strike price of a call option is the price you pay to buy the underlying asset before expiration. If you have a put, the strike price is the price you can sell the asset before expiration. The strike price is the key element of an options matrix. It divides a chain into two parts for a call and a put option.
* Ask and Bid Quantity:
The bid quantity is the number that traders will purchase or bid for, and the ask volume is the number that they are willing (or willing to ask) to sell. The information is available for both call and put option sections of contracts with different strike prices. This information reflects primarily the supply and demand in the options markets for each contract.
* Ask and Bid Prices
The prices that buyers and sellers will accept to trade an option contract. The bid price is what an interested buyer will pay to purchase an option. Meanwhile, the ask price represents the price at which a seller of options is willing to accept. The bid-ask difference is the price difference between bid and ask. The spread can be wide or narrow depending on demand and supply.
For F&O traders, the NSE options chain is a typical starting point.
The NSE chain is the main source of options trading for most beginners. It is easy to understand, as the NSE serves as a portal for many beginners who are unfamiliar with the derivatives markets. The data from the stock market confirms that the NSE’s daily volume of options trading has exceeded Rs150 lakh crore since 2022. Recent data shows that around 75% NSE revenue comes from options trading.
While the NSE offers all the details listed above, traders should also look at other advanced metrics to create profitable options trading strategies.
Why an advanced options chain is necessary
It is important to have an advanced option chain that includes Greeks for more efficient and faster decision-making. The Greeks give you critical insight into how factors such as price movement, time decay, and volatility impact the value of options. You can assess the risks and rewards quickly by viewing these data points in the options chain without having to switch between tools or screens.
Samco Securities provides ideas for effective options trading.
Has the solution for those who are searching for a simple yet effective method to improve their strategy-building capabilities with an advanced option chain. The technology-driven broker partner offers an advanced and comprehensive options chain, which goes beyond the standard NSE option chain and includes live Greeks data.
