Simplifying Nifty option chain Chart – Basics and its importance in options trading and trend recognition
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 option chain to be a more informed trader. It is of utmost importance in your probability of making better trading decisions in option trading.
What is an 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.
Nifty option chain is a list of all the options for a security.
A Nifty option chain is highly useful for traders and investors alike for understanding option quotes.
It also include bid-ask quotes or mid quotes, depending on the presentation of the data.
Step by Step Explanation with the help of Graphical illustrations to help you navigate and understand Nifty Option Chain.
Then click on the option chain at the right top as shown below. 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.
This is what Nifty option chain chart will display:
From the illustration above, the Nifty option chain chart is divided into 2 parts. It is then separated in the middle by the strike price.
- The right side of the chart shows all the Put Options
- The left side of the chart shows all the Call Options
- The middle section the chart 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 Nifty Option Chain:
Let’s discuss each parameters involved in the Nifty option chain.
This represents all the parameters available data for all strike price of a call option.
Call options are those contracts that give the buyer the right, but not the obligation to buy the underlying shares or index in the futures.
It displays all the parameters available data for all strike price of a put option.
Puts are options contracts that give you the right to sell the underlying stock or index at a predetermined price on or before a specified expiry date in the future.
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.
It is 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.
It refers to 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.
It displays 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.
All the available expiry date contracts are shown in this section. In case of Nifty, we can find up to 3 months of available Expiry date contracts.
Alternately, you can also search for parameters of individual scripts by entering the stock name in the search box as given below:
How to analyze a probable trend using these Parameters?
All these parameters especially the price, volume, open interest and implied volatility are correlated to give you an idea of the trend of the market.
Here is a simple example below that will give you a basic understanding in recognizing trends using various parameters of the Nifty option chain.
IF OPEN INTEREST
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