Stock investors compare different shares and companies based on numerous factors. They might browse different stocks on online trading platforms to find the best ones. Similarly, options traders browse available contracts for a particular security through an option chain. Beginners in the investment sector must know the particulars of this tool. Read on to understand the option chain trade and its particulars in detail.
What is an Option Chain?
An option chain, also known as an options matrix, allows investors to view all available contracts. It is a listing of available options contracts for a particular security. For instance, it can show all available contracts for a particular stock.
An option chain will consist of both call and put options, along with other details. Option chain trades are more informed, as investors can compare different contracts. It can help investors view the strike price, bid price, ask price, volume, and other details for available contracts. These details allow options traders to make informed decisions.
Deciphering the Terms
An option chain is a matrix consisting of several particulars. One must be aware of what different terms mean in this tool. Here are the terms one can find:
Strike Price
An options contract allows you to buy/sell the underlying asset at a predetermined price on the expiration date. The predetermined price for buying/selling the underlying asset is called the strike price. It is essential to understand the concept of strike price before you learn how to use the option chain.
Open Interest
It refers to the total number of outstanding options in the market for a particular security. It includes all options that aren’t closed or exercised yet. It helps us understand the total number of outstanding options that exist. Investors can analyse the market activity with the help of open interest. Also, it helps investors understand the liquidity associated with options.
Volume
Volume represents the total number of options contracts that are traded till now. Volume represents the total number of contracts traded within a specific period, usually within a trading day. A high volume represents increased interest from investors in a particular option. On the other hand, a low volume means that traders aren’t interested.
Bid Quantity
Bid quantity is another metric to know before understanding how to trade using the option chain. It represents the total number of buy orders for a particular strike price. One can find the number of contracts investors are willing to buy at a given bid price. One can understand the demand for buyers in the options market with the help of bid quantity.
Bid Price
Bid quantity only represents the total number of contracts investors are willing to buy at a particular strike price. The bid price represents the higher price a buyer is willing to pay for the contract. When the demand for a contract is more, traders are willing to pay more.
Last Traded Option
It represents the most recent price at which the contract was traded in the market. It is the price at which the last transaction was executed for the particular options contract. In some option chains, the ‘last traded option’ might be represented as ‘last price’.
Ask Price
The ask price represents the price at which traders are willing to sell the particular contract. It denotes the lowest price a seller is willing to accept for the contract at the given moment. Besides understanding what is option chain, traders must know what each term in the tool means to make informed decisions.
Ask Quantity
It represents the total number of sell orders available for a particular strike price. In other words, it represents the total number of contracts being sold at a particular ask price.
Additionally Read: Demat Account Meaning
Doing it Right with Religare Broking
One can view options chains online and invest accordingly. Here’s how one can invest in options with Religare Broking:
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Open a demat account with Religare Broking. It will offer you access to one of the trading platforms offered by Religare Broking.
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It is essential to refer to an option chain before you place an order via a trading platform
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One can find them online for different securities. Several stockbrokers offer updated information for research purposes.
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Search for an option chain for any particular security. For instance, you can search for an option chain for a particular stock. It will highlight all open contracts based on the particular stock.
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You must choose between call or put before placing an option chain trade. When you click on call or put, the buy/sell buttons are visible.
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You must now choose between buy or sell order. Also, you must provide the price and quantity to place your order.
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You can place option orders via the online trading platform of Religare Broking. One can also review orders to ensure everything is up to the mark.
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You can submit your option order after reviewing it. All charges or taxes associated with the order will be mentioned.
Conclusion
An option chain can help understand the demand for options based on a particular security. One can know the number of open contracts, the maximum ask price, the ask quantity, and more with this tool. You can compare strike prices and volumes of different contracts with an option matrix. Religare Broking can help investors place option chain trades and earn attractive returns. Learn more about option chains right away!
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