Understanding Option Chains: A Step-by-Step Guide for New Traders
Introduction: What Is an Option Chain?
Let’s pretend you’re at a big candy store.
Each candy has a different flavor, price, and expiry date. Some candies will become tastier (more valuable) over time, and some may not. An Option Chain is like a big candy chart showing all the candies (options) available for a single stock — their prices, flavors (calls and puts), and expiry dates.
In the world of stock trading, an Option Chain helps you see all the available call options and put options for a particular stock. It's like a menu for option traders.
But wait...
Let’s break it down from zero — just like learning ABCs.
Step 1: What Are Options? (Before We Even Look at a Chain)
An Option is like a ticket that gives you a choice to buy or sell a stock at a fixed price before a certain date. There are two types:
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Call Option = You’re buying the right to BUY a stock.
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Put Option = You’re buying the right to SELL a stock.
Important: You don’t have to buy or sell. It’s just a right, not a promise.
Example:
If you buy a call option on Apple at ₹100 and the stock goes to ₹120, you can buy at ₹100 and make a profit!
Step 2: What Does an Option Chain Look Like?
An Option Chain looks like a big table full of numbers. It shows two major sides:
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Left side = Calls
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Right side = Puts
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Middle = Strike Prices (the price at which you can buy or sell)
Here’s a very simplified option chain:
| Call Bid | Call Ask | Strike | Put Bid | Put Ask |
|---|---|---|---|---|
| ₹10 | ₹12 | ₹100 | ₹8 | ₹10 |
| ₹7 | ₹9 | ₹105 | ₹11 | ₹13 |
| ₹5 | ₹6 | ₹110 | ₹15 | ₹17 |
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“Bid” = what buyers want to pay
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“Ask” = what sellers are asking for
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“Strike” = the agreed-upon price for the stock in the future
Step 3: Understanding Key Terms in the Option Chain
Let’s decode the important parts:
✅ Strike Price:
The price at which you can buy or sell the stock.
✅ Premium:
The price you pay to buy the option (like a movie ticket).
✅ Expiry Date:
The last date your option is valid — like the expiration date on milk.
✅ Open Interest (OI):
How many people are holding this option — more interest means more people are watching that price.
✅ Volume:
How many options were traded today.
Step 4: How to Read the Option Chain Step-by-Step
Let’s say you’re looking at the Reliance stock option chain:
1. Find the Current Market Price (CMP)
Suppose Reliance is at ₹2500.
That becomes your center — focus on strike prices close to ₹2500.
2. Look at Strike Prices Around CMP
Strike prices nearby (like ₹2480, ₹2500, ₹2520) are most important. They’re where the action happens.
3. Choose Call or Put Based on Your View
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Think stock will go up? Look at Call options
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Think stock will go down? Look at Put options
4. Check the Premium
This tells you how much it’ll cost to buy that option.
5. Look at Open Interest and Volume
More OI + high volume = more active and liquid = better!
Step 5: A Simple Example (Like a Game)
Let’s say:
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You think Reliance will go up from ₹2500 to ₹2550 in 7 days.
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You look at the ₹2500 Call Option with 7 days to expiry.
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Premium = ₹30.
That means you pay ₹30 to get the right to buy Reliance at ₹2500.
If the stock goes to ₹2550:
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You can buy at ₹2500 and instantly gain ₹50.
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Your profit = ₹50 (gain) - ₹30 (cost) = ₹20 per share.
If the stock doesn’t go up?
You only lose the ₹30 you paid. No more.
Step 6: Why Use an Option Chain?
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✅ Helps you plan your trade
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✅ Lets you compare different strikes
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✅ Shows you what other traders are watching
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✅ Tells you the best place to enter a trade with higher activity
Bonus Tip: Tools to View Option Chains
You can view Option Chains on:
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NSE India (https://www.nseindia.com)
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TradingView (paid)
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Brokers like Zerodha, Angel One, Upstox
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Opstra, Sensibull — great for analysis
Final Words: Start Small, Go Slow
An option chain may look scary at first, like a big spreadsheet full of confusing numbers. But once you break it into small pieces — like we did here — it becomes a powerful map that helps you make smarter trading decisions.
Treat it like a game. Learn it slowly. Play with virtual money (paper trading) first.