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What are option chains?

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An option chain, also called an option matrix or option table, is a detailed list of all available options contracts for a specific asset, like a stock or an index. Think of it as a directory showing every possible option trade for that asset.

  1. What information does an option chain display?
    • Expiry Dates: When the option contracts will expire.
    • Strike Prices: The set prices at which the asset can be bought or sold if the option is exercised.
  2. For each expiry date and strike price combination, an option chain provides:
    • Bid and Ask Prices: The highest price a buyer will pay and the lowest price a seller will accept.
    • Last Traded Price (LTP): The price at which the option was last traded.
    • Change: The price change from the previous day's close.
    • Volume: The total number of contracts traded during the day.
    • Open Interest (OI): The total number of unsettled contracts.
    • Implied Volatility (IV): An estimate of the asset's future volatility based on the option's price.
  3. Why are option chains important?
    • Option chains are crucial for options traders because they provide a clear market view, helping to:
    • Identify trading opportunities.
    • Analyze market sentiment by comparing Call vs. Put Open Interest.
    • Compare different strike prices and expiry dates.
    • Understand the liquidity and pricing of various contracts.
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