An options chain is like a menu of all the available options contracts for a specific security. The options chain, or options matrix, shows the listed puts, calls, the expiration dates, strike prices, and volume and pricing information for the underlying asset, within a given maturity.
An options chain provides detailed quote and price information, and is usually divided into calls vs. puts and categorized by expiration date.
Understanding the Options Chain
To understand what an options chain is, you first need to understand how options trading works. With this knowledge, you can build options trading strategies and attempt to profit in the market.
Options may allow you to profit on movements in the price of an underlying asset that you don’t own directly, by giving you the right, but not the obligation, to buy or sell a stock or other asset at a certain price (the strike price) at a certain date in the future (expiration date). But options trading strategies can be quite risky and are typically undertaken by experienced investors.
While options can get quite complex, there are basically two kinds of options: calls vs. puts.
Calls are options that allow you to buy a stock at a preset price (the strike price) until some point in the future (the expiration date), while puts give you the ability to sell an option at a specific price until the expiration.
A call option is a contract that typically allows an investor to buy 100 shares of an underlying stock or other security at the strike price. A call option can be appealing because it gives an investor a potential way to profit from a stock’s increase in price without having to pay the full price for 100 shares.
The investor pays what’s known in options terminology as the “premium” on each share, which is typically much less than the current price of the stock.
By contrast, a put option is a contract that allows the investor to sell shares at a certain price at a specified time in the future. The seller of the put option has the obligation to buy the shares from the put buyer, if the put buyer chooses to exercise the option.
If call options are a way to profit from a stock going up in price without having to own the stock itself, then put options are a way to profit from the fall of a stock’s price without having to short the stock (i.e. borrow the shares and then buy them back at a lower price).
In-the-Money and Out-of-the-Money Options
Options can be “in the money” (ITM) or “out of the money” (OTM). The terms refer to the relationship between the options strike price and the market value of the underlying asset.
Knowing the difference between being in or out of the money allows the options holder to gauge whether they might see a profit from their option, and to decide if and when to exercise the option.
• A call option would be in the money if the strike price was lower than the current market price of the underlying security. An investor holding such a contract could exercise the option to buy the security at a discount and sell it for a profit right away.
• An out-of-the-money call option would be when you purchase an options contract that would allow you to buy a stock at a price higher than it is trading at right now. That means the option doesn’t have any intrinsic value. Any value the option has is based on the possibility that the price of the underlying security will go up in the future.
The reverse applies to puts. A put would be in the money if the strike price is higher than the current market price of the underlying security, and out of the money if the strike price is lower.
What Is an Options Chain?
Option chains are basically charts that list different options and the information that differentiates them. The options chain can vary, depending on who is providing it, but some of the terms can include:
• the strike price
• last price
• trading volume
• the bid
• the ask
• net change
Once you understand basic options concepts like calls vs. puts, an options chain will be pretty easy to read.
Then you can move on to more complicated options trading strategies like options trading straddles.
Finally, user-friendly options trading is here.*
Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.
*Check out the OCC Options Disclosure Document.
Options Chain Example
Here is a hypothetical example of an options chain for Company ABC.
Calls for January 27, 2023
|Contract name||Last Trade Date||Strike||Last Price||Bid||Ask||Change||Volume||Open Interest|
|ABC230127C00240000||2022-12-16 3:37PM EST||240.00||15.22||12.95||15.00||-2.58||15||54|
|ABC230127C00245000||2022-12-16 3:53PM EST||245.00||11.00||9.10||12.15||-3.33||68||111|
|ABC230127C00250000||2022-12-16 3:59PM EST||250.00||8.80||8.20||10.80||-2.55||96||175|
Options chains aren’t standardized, so your options chain provider may include more or less information.
Additional information could include more detail on price fluctuations, such as percentage price changes. Some sites include information on the characteristics of the option itself, such as implied volatility.
Reading the Options Chain
Once you understand the terms listed in the options chain, it’s relatively easy to decode. Reading from left to right in the hypothetical options chain above:
• Contract name: Just as the fictional ABC company has a stock ticker, options have an alphanumeric identifier. For instance, “ABC230127C00240000” refers to an option to buy ABC shares by January 27, 2023 for $240. In other words, this is a call option with a strike price of $240 that expires on January 27, 2023.
• Last trade date: The date and time when the option was last traded.
• Strike: The price at which the option may be bought (calls) or sold (puts) before the expiration date.
• Last price: The most recently traded or posted price of the option.
• Bid: The highest price someone is willing to pay for the option.
• Ask: The lowest price someone is willing to sell the option.
• Change: How the price has changed since the close of the previous trading session.
• Volume: The number of options contracts traded the most recent day that trading has been open.
• Open interest: These are the options contracts that haven’t been closed — meaning exercised (i.e. the stock has been bought or sold at the pre-arranged price) or otherwise settled.
How Options Chains Can Help You Trade Options
Options chains are a key tool in trading options. How they directly lead to options trading depends on how the specific brokerage you use utilize options chains, and how certain factors might fit into a trader’s overall strategy.
For example, an experienced trader would be able to gauge the market in terms of price movements and higher and lower liquidity. These are key points to know for efficient trade executions and potential profitability.
For example, a trader wanting to assess market conditions for the first call option in the matrix above, might consider the last price, the bid, ask, and net change.
Any brokerage that allows you to trade options will provide the type of information seen in an options chain, as it is necessary for options to be priced and for investors and traders to make informed decisions about options trading.
Brokerages typically also have various deposit and educational or knowledge requirements for options trading as well.
Options are highly complex derivatives, and investors need to be skilled and experienced enough to digest a series of critical data points in order to have an effective options strategy. One tool that can be effective for traders is using an options chain, or options matrix.
An options chain is similar to a master list of available options contracts for a specific security (the underlying). It shows the puts, calls, expiration dates, strike prices, and volume and pricing information for the underlying asset. By reading these charts, traders can decide which options fit their strategy.
If you’re ready to try your hand at options trading, SoFi can help. You can trade options online from the SoFi mobile app or through the web platform. And if you have any questions, SoFi offers educational resources about options to learn more.
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