What is an Option Chain? - Definition, Types & Significance of Option Chain

An option chain is a simple table that shows all option contracts for one stock or index at one glance. You see call options on one side and put options on the other side. In the middle, you see the strike prices. For each strike, the table shows last traded price, bid and ask, traded volume, open interest, change in open interest, and sometimes implied volatility. Think of it as a shop menu for options. You can quickly check which strikes are active, where traders are placing bets, and how prices are moving today.

Why is this useful? The option chain helps you read market moods. Large put open interest often acts like support. Large call open interest often acts like resistance. Rising open interest shows fresh positions being built. Falling open interest shows positions closing. You can also judge liquidity by looking at volume and bid–ask spread. A tight spread and high volume mean easier entry and exit. In this guide, we explain the meaning of an option chain, key parts, main types, how to read it step by step, how traders use it, the benefits, the limits, and a small example. The language is simple so any beginner can start.

What is an option chain

An option chain is a list of all available call and put options for a chosen expiry date. It is shown in a two-sided table. Calls are usually on the left, puts on the right, and strikes in the middle. You pick an underlying first, like a stock or an index, and then pick the expiry you want to study, such as this week or this month. The chain then shows each strike price with live data so you can compare.

Read more: Call vs Put Options

Each row tells you the price people are willing to buy or sell, how many contracts are traded, and how many are still open. This helps you see where the action is. If the underlying price is near a strike with heavy open interest, that strike can behave like a magnet or a wall for the day. The chain updates during market hours, so you can see changes as they happen. Use the option chain as a map, not as a promise. Always combine it with a price chart and simple risk rules.

Parts Of An Option Chain You Must Know

• Call and Put Columns

These show the data for buyers and sellers on each side of the chain. Calls are usually on the left, and puts are on the right.

• Strike Price

The fixed price where the option gives the right to buy or sell the underlying asset. This is the central reference in the chain.

• LTP (Last Traded Price)

The most recent price at which the option traded. It gives you a quick idea of the option’s current market value.

• Bid and Ask

The best prices available to buy (bid) or sell (ask) one contract. A small bid–ask gap means better liquidity and smoother execution.

• Volume

The number of contracts traded today. High volume usually means more activity and interest in that strike.

• Open Interest (OI)

The number of contracts that are still open and active. Large OI zones often highlight strong support or resistance levels.

• Change in Open Interest

Shows whether new positions are being added or old ones are closing during the day. A critical clue for tracking fresh money flow.

• Implied Volatility (IV)

Reflects the market’s expectation of movement. Higher IV means richer option prices and often signals bigger expected swings.

• Additional Data

Some chains also display price change, bid/ask quantities, and Greeks. These are helpful but not essential for beginners.

Types Of Option Chains

1. Equity Option Chain

• Shows options for a single stock.
• Liquidity can vary by stock.
• Best to stick with tight bid–ask spreads and healthy volumes.

2. Index Option Chain

• Shows options for a market index.
• Usually very liquid.
• Commonly used by beginners to learn.

3. Weekly Option Chains

• Contracts that expire every week.
• Popular for short-term trading.
• Levels and premiums move quickly.

4. Monthly Option Chains

• Contracts that expire once a month.
• Useful for swing and position trades.

Expiry Variations: Near, Next, and Far Month Chains

• Near expiry → very sensitive to price moves and time decay.
• Far expiry → less volatile, but premiums are higher.
• Some platforms provide a combined view to switch between weekly/monthly or compare two expiries.

How to Choose

• For quick trades → study the weekly chain.
• For swing trades → study the monthly chain.
• Golden Rule: Keep it simple and avoid illiquid strikes.

How To Read An Option Chain

Step 1: Pick the underlying and the expiry date.

Step 2: Note the current underlying price and mark the nearest strike as at-the-money.

Step 3: Scan open interest and change in open interest rows. Look for strikes with the highest values on both call and put sides.

Step 4: Mark these zones on your chart. High put open interest near price can act like support. High call open interest near price can act like resistance.

Step 5: Check volume and bid–ask spread at your strikes. Prefer tight spreads and good volume for easier execution.

Step 6: Note implied volatility. If it is high and rising, option prices are rich and moves may be larger.

Step 7: Watch how change in open interest behaves with price. If price goes up and call open interest rises fast, it may be fresh short calls fighting the rise, or it could be writers adding at new levels. If price goes up and call open interest falls, it may be shorts covering, which can fuel the move.

How Traders Use Option Chains (Significance)

• Spot support and resistance

Traders look for the largest open interest zones. Big put OI often acts like a support level, while big call OI works like a resistance zone.

• Track intraday shifts

The change in open interest shows if traders are building new positions or closing old ones during the day, giving clues about short-term sentiment.

• Check liquidity

High volume and tight bid–ask spreads ensure smooth trade execution and help traders avoid losses due to slippage.

• Pick strikes for strategies

Depending on the market view, traders may buy at-the-money options for breakouts or sell far out-of-the-money options when expecting a range-bound move.

• Plan exits with OI zones

High open interest strikes near the current price often serve as targets or stop-loss reference points for managing trades.

• Choose expiry wisely

Traders compare weekly vs monthly option chains. Weekly contracts are good for quick moves, while monthly contracts suit swing or positional trades.

Advantages of Using an Option Chain

• Fast view of market mood

An option chain gives you a complete picture on one screen. You don’t need to open multiple charts to see where the action is happening.

• Clear zones for planning

Large open interest pockets act as easy reference points for support and resistance, helping you plan trades with more confidence.

• Better execution

By checking liquidity and bid–ask spreads, you can avoid poor fills and trade more smoothly.

• Flexible choice

You can quickly switch between weekly and monthly expiries, and pick strikes that best match your trading style, risk appetite, and outlook.

• Simple comparisons

The option chain lets you compare today’s change in open interest with price action to judge whether positions are opening or closing.

• Improved discipline

Planning trades around known levels with tight spreads often encourages smaller stop-losses and better risk management.

• Learning tool for beginners

For new traders, the option chain acts as a daily classroom. Watching how numbers shift on green days vs red days helps build a feel for market behavior. Keeping notes and screenshots further speeds up the learning process.

Limitations and common mistakes

Option chain data can change very fast. A level that looked strong in the morning can vanish after big news. Do not treat open interest as a fixed wall. Some readings can be tricky. Rising open interest with rising price can mean fresh longs or fresh shorts, and the chain alone may not tell which. Combine with price action on the chart. Illiquid strikes can show odd prices and large bids–ask gaps. Avoid them. Near expiry, time decay moves fast and can hurt option buyers even when price moves a little in their favor.

A common mistake is to trade only on one cell that looks large or bright without context. Another is to ignore the main trend and bet on a reversal just because put open interest is high. Also avoid trading big size in weekly options without a tested plan, as moves can be sharp. The cure is simple. Use the chain as a guide, add chart confirmation, pick liquid strikes, and keep risk small.

Example Of an Option Chain

Market Setup

Suppose an index is trading near 20,050. You open the weekly option chain and notice:

• Very high put OI at 20,000.
• Very high call OI at 20,200.
• Change in OI shows fresh puts added at 20,000 in the morning, and fresh calls added at 20,200 after a small rise.
• Bid–ask spreads are tight and volume is healthy at both strikes.

Plan One: Bounce from Support
If the price dips to 20,020 and holds above 20,000 with strong candles, a learner may take a small, long trade. Here, 20,000 acts as support, and the target can be set near 20,200.

Plan Two: Breakout Trade
If the price breaks above 20,200 and closes firmly, a learner may plan a breakout trade toward 20,250–20,300, while keeping a stop-loss just below 20,200.

Invalidation: Weak Support
If the price falls below 20,000 with strong selling and the put OI at 20,000 starts falling, then the idea of support weakens. In such a case, the safe step is to stay out.