As a new trader, when you look at Nifty option chain, it may look like a bunch of random numbers.
But an option chain gives us important information about the underlying asset and its probable future position.
Learn to understand Nifty options chain to be a more informed trader. It is of utmost importance in your probability of making or losing money in option trading.
What is the Nifty option chain?
An option chain is a presentation of all the call and put option strike prices along with their premiums for a given maturity period. A Nifty option chain is a list of all the options for a security. A Nifty option chain is highly useful for a retail investor for understanding option quotes. Most stock trading platforms display option chains. A Nifty option chain can also include bid-ask quotes or mid quotes, depending on the presentation of the data.
So, here is a step by step explanation supported by graphical images to help you navigate and understand Nifty option chain.
First you need to go to www.nseindia.com and type “NIFTY” in the search box.
After this, click on the option chain at the right top. This will take you straight to the Nifty option chain page.
Or else click the Equity derivatives under live market section type. On clicking, the following page would be loaded.
Let us now breakdown the layout of the Nifty option chain page:
As from the image above, the Nifty option chain page is divided into 2 parts. It is then separated in the middle by the strike price
The right side of the page shows all the Put Options
The left side of the page shows all the Call Options
The middle section the page represents descending list of strike prices of the underlying scrip.
The yellow background shaded sections shows In the Money (ITM)
The white background shaded sections shows Out of the Money (OTM)
Parameters of the Nifty Option Chain:
Now let us discuss each parameters involved in the Nifty options chain.
This represents all the parameters available data for all strike price of a call option. A call option
This represents all the parameters available data for all strike price of a put option.
Open Interest (OI)
This shows the number of contracts outstanding in each particular strike price.
Change in Open Interest
The change in OI shows the change over the previous day’s closing.
This shows the total number of contracts traded on the present trading day.
Implied Volatility (IV)
IV is derived from an option price and shows what the market “implies” about the stock’s volatility in the future.
Implied volatility acts as a critical surrogate for option value – The higher the IV, the higher the option premium.
Last traded price (LTP)
LTP is the list that shows the price at which it was traded last.
This is the current number of buy order quantity or demand in the system
The bid price in a Nifty option chain depicts the maximum price the buyer is willing to pay for a specific call or put.
The bid price in a Nifty option chain depicts the maximum price the seller is willing to receive for a specific call or put.
This is the current number of sell order quantity or supply in the system
This section shows all the available strike prices. The strike price is defined as the price at which the holder of an option can buy (in the case of a call option) or sell (in the case of a put option) the underlying security when the option is exercised.
This section will show you the specific strike price premium movement over a given period of time in the form of a chart.
Both equity futures and option contracts expire on the last Thursday of every month. Like futures contracts, option contracts also have the concept of current month, mid month, and far month.