Reading an option chain
What each column of an option chain means, from open interest to implied volatility, and what the put-call ratio and max pain do and do not tell you.
The layout
An option chain lists every strike price for one expiry of an index or share. Strikes run down the middle. Call options are on the left and put options on the right. Each row shows the figures for the call and the put at that strike.
All of the figures below are descriptive: they show what has been traded and what positions are open. None of them is a signal or a forecast of where prices will go.
The columns
- OI (open interest): the number of contracts open at that strike, not yet closed or expired. Every open contract has one buyer and one seller, so OI does not show which side holds the stronger view.
- Change in OI: how much open interest has risen or fallen since the previous day. A rise means more new positions were opened than closed; a fall means more were closed.
- Volume: the number of contracts traded today at that strike. Volume counts trades; OI counts positions still open.
- IV (implied volatility): the volatility worked backwards from that option’s price, quoted as a yearly percentage.
- LTP (last traded price): the premium at which the option last traded. On thinly traded strikes it may be old.
- Bid and ask: the best prices buyers are offering and sellers are asking right now.
Put-call ratio (PCR)
The put-call ratio is the total open interest of all puts divided by the total open interest of all calls for that expiry. A PCR of 1.2 means there are 1.2 open put contracts for every open call contract.
Commentators read PCR in different and often opposite ways. It describes how open positions are split between puts and calls; it does not show who bought and who sold, or why.
Max pain
Max pain is the strike at which, if the index or share settled there on expiry, the total value of all in-the-money calls and puts would be lowest. It is worked out by trying every strike as the settlement price and adding up what all open options would be worth there.
It is arithmetic on current open interest, which changes through the day. Settlement prices often end far from the max pain strike.
Things to keep in mind
- NSE data on public websites is delayed, and the figures change through the trading day.
- Far-away strikes may have little trading, so their prices and IVs can be stale.
- Large OI at a strike shows where many positions are open, not where prices will stop.
Sources
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For education only. This is not investment advice or a recommendation to buy or sell anything.