An options chain is a valuable tool for options traders, providing a quick overview of important information in one place. If you are trading options, it is essential to understand how to navigate the options chain efficiently to access the necessary information promptly. This article explains what an options chain is, how it functions, and how to utilize it effectively in options trading.
What is an options chain?
An options chain presents a summary of information for a specific option expiration in a table format, allowing traders to easily access essential data about various options. The content displayed in an options chain can vary, with no fixed standard, offering relevant details on how the option is trading, including its latest pricing.
For instance, the options chain example below for CareTrust REIT is sourced from Yahoo Finance, illustrating a standard set of data available in a chain. Each option expiration has its individual chain, with this section focusing on call options, while put options are listed separately.
Source: Yahoo Finance
The graphic displays data for the Jan. 17 expiration. Users can select data for upcoming expirations using the dropdown menu. Leading brokers for options trading may offer a broader range of data in their chains, including option Greeks like delta, aiding traders in predicting future price movements.
What information does an options chain reveal?
Every stock with options has its dedicated option chain, showcasing pertinent details specific to that stock. A typical options chain includes the following information:
– Contract name: Official code for the option, encompassing its ticker symbol, expiration date, option type, and strike price.
– Last trade date: Indicates the most recent trading activity of the option.
– Strike price: Specifies the level at which the option becomes profitable.
– Last price: Displays the recent sale price of the option.
– Bid: Current buying price.
– Ask: Current selling price.
– Change (absolute and percentage): Shows the contract’s absolute and percentage change.
– Volume: Reveals the number of contracts traded on that day.
– Open interest: Indicates the outstanding contracts that have not been closed.
– Implied volatility: Reflects the expected stock volatility based on option pricing.
Additionally, the table highlights “in the money” options through color-coding, distinguishing them from “out of the money” options. Options chains are customizable, allowing traders to adjust the display to focus on relevant information, such as adjusting the number of strike prices shown or viewing calls and puts side by side for more advanced trading strategies.
Why are options chains valuable to traders? An options chain is a comprehensive tool that displays both call and put options for a particular stock. It provides traders with easily accessible information about the available options for a stock, enabling them to quickly find relevant data. There are several reasons why an options chain is considered valuable:
1. **Availability of strike prices**: The options chain allows traders to see which strike prices are available for a specific stock. While strike prices close to the current market price are typically more popular, many stocks offer strike prices that are significantly higher or lower than the current price.
2. **Price scanning**: One of the key functions of an options chain is the ability to scan prices. The table format of the options chain makes it easy for traders to compare prices at different strike prices quickly. This enables traders to identify premiums that align with their risk tolerance and trading strategy.
3. **Popularity of strikes**: The options chain provides information on the popularity of specific strike prices through metrics such as volume and open interest. This data can give traders insights into which options are being actively traded by other market participants.
4. **Timeliness of data**: Traders can assess the freshness of the data in an options chain by checking the date of the last trade. It is crucial to rely on up-to-date pricing information, as prices that are outdated may not accurately reflect the current market conditions. While publicly available option chains may not update in real-time, brokers’ websites typically offer more real-time pricing data.
5. **Multiple expirations**: Traders can customize the options chain to display expirations over different time frames. This feature allows traders to analyze price data for options expiring in the future and compare them effectively.
An options chain provides traders with a wealth of information in a concise and organized table format, allowing them to make informed trading decisions efficiently. It is essential for traders to be aware that the data displayed in an options chain may not always be the most current and should be used cautiously.
In conclusion, options chains serve as valuable tools for traders seeking to navigate the complex world of options trading. By offering a comprehensive overview of available options, pricing data, and market activity, options chains empower traders to make well-informed decisions in the dynamic options market.
