Option Chain
An options chain, also known as an option matrix, is a listing of all available options contracts for a given security. Source: Yahoo! Finance. Yahoo!Finance In the columns following the four listed above, you will find important information to gauge market size for a given option and how traders are committed at each price level. Trading volume, or the number of contracts that change hands in a given day, indicates how much liquidity there might be for any given option. The options chain matrix is updated in real-time showing the last price, trading volume, and best bid and offer for the calls and puts of an options series, typically segmented by expiration date. An options chain provides detailed quote and price information and should not be confused with an options series or cycle, which instead simply denotes the available strike prices or expiration dates. 2. Information in the net change column reflects the direction (up, down, or flat) for the underlying asset, as well as the amount of price variance from the previous trade. 3. The review of the bid column shows information about how much a trader could expect to receive on the sale of that option at that time-frame.
What Is an Options Chain?
An options chain, also known as an option matrix, is a listing of all available options contracts for a given security. It shows all listed puts, calls, their expiration, strike prices, and volume and pricing information for a single underlying asset within a given maturity period. The chain will typically be categorized by expiration date and segmented by calls vs. puts.
An options chain provides detailed quote and price information and should not be confused with an options series or cycle, which instead simply denotes the available strike prices or expiration dates.
Understanding Option Chains
Option chains are probably the most natural form of presenting information for retail investors. The option quotes are listed in an easy-to-understand sequence. Traders can find an option premium by following the corresponding maturity dates and strike prices. Depending on the presentation of the data, bid-ask quotes, or mid-quotes, are also displayable within an option chain.
The majority of online brokers and stock trading platforms display option quotes in the form of an option chain using real-time or delayed data. The chain display allows quick scanning of activity, open interest, and price changes. Traders can hone in on the specific options required to meet a particular options strategy.
Traders may quickly find an asset's trading activity, including the frequency, volume of trading, and interest by strike price and maturity months. Sorting of data may be by expiration date, soonest to furthest, and then further refined by strike price, from lowest to highest.
Decoding the Option Chain Matrix
The terms in an options matrix are relatively self-explanatory. A skilled user can quickly decipher the market regarding price movements and where high and low levels of liquidity occur. For efficient trade executions and profitability, this is critical information.
There are four columns of information that traders focus on to assess current market conditions. The columns are Last Price, Net Change, Bid, and Ask.
- The last price column displays the latest trade price captured and reported.
- Information in the net change column reflects the direction (up, down, or flat) for the underlying asset, as well as the amount of price variance from the previous trade.
- The review of the bid column shows information about how much a trader could expect to receive on the sale of that option at that time-frame.
- Information about how much the trader can expect to pay to purchase that option at that time appears in the ask column.
Call Option Chain for Apple Inc. (AAPL). Source: Yahoo! Finance. Yahoo!Finance
In the columns following the four listed above, you will find important information to gauge market size for a given option and how traders are committed at each price level.
Trading volume, or the number of contracts that change hands in a given day, indicates how much liquidity there might be for any given option. Open interest, meanwhile, measures the total number of options outstanding on each strike and maturity, allowing you to gauge the scale of market commitment.
The real level of open interest varies intraday. Market makers report the information shown in the option chain only at the end of each trading day. The option chain matrix is most useful for the next trading day.
Related terms:
Ask
The ask is the price a seller is willing to accept for a security in the lexicon of finance. read more
Bid
A bid is an offer made by an investor, trader, or dealer to buy a security that stipulates the price and the quantity the buyer is willing to purchase. read more
Broker and Example
A broker is an individual or firm that charges a fee or commission for executing buy and sell orders submitted by an investor. read more
Compound Option
A compound option is an option for which the underlying asset is another option, thus two strike prices and two exercise dates. read more
Expiration Date (Derivatives)
The expiration date of a derivative is the last day that an options or futures contract is valid. read more
Illiquid Option
An illiquid option is a contract that cannot be sold for cash quickly at the prevailing market price. Illiquid options have very low or no open interest. read more
Intraday
In the financial world, the term intraday is shorthand used to describe securities that trade on the markets during regular business hours and their highs and lows throughout the day. Day traders closely watch these moves, hoping to score quick profits. read more
Liquidity
Liquidity refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price. read more
Market
A market is a place where two parties, usually buyers and sellers, can gather to facilitate the exchange of goods and services. read more
Market Maker
Market makers compete for customer order flow by displaying buy and sell quotations for a guaranteed number of shares. read more