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How do you read an options chain?

How do you read an options chain?
Asked by
Paul Beck categorie-icon time-icon6 months ago
1 Answer Answer Question

Sheila Olson
Answered time-icon6 months ago

When you jump into options trading, you need to learn a new lingo—and at first, it all seems a bit confusing. Even the term “options chain” seems like an overdone way to say “quote,” until you realize all the different things you need to know about an options contract before you’re ready to trade.

The first thing to know about options is that not all publicly traded stocks have options, but those that do have options chains on most of the major financial sites such as MarketWatch and Yahoo Finance. Most trading platforms also include options chains, usually linked from the underlying stock chart. The exchanges themselves also maintain options charts.

The options chain below is taken from Yahoo Finance for Microsoft stock, which, at the time this was written, was trading at $117.94.

An options chain has two parts: Calls and puts. Calls are always listed first. Remember, a call option gives you the right, but not the obligation, to buy 100 shares at the strike price at any point up to the expiration date. In the example above, the shaded contracts are in the money, the unshaded ones are out of the money.

The first column is the symbol for this particular option. What it tells you is that this is for Microsoft (MSFT) and it expires on 3/29/2019—the number sequence 190329 indicates that “19” is the year, and 0329 is the date. The letter “C” in the symbol tells you it’s a call option, and the next series of numbers indicates the strike price. The sequence 000120000 tells you the strike price is $120.

Moving to the right, you’ll see the date and time of the last trade for a particular options contract. The next column is the strike price for that contract, and immediately to the right is the price paid in the last trade. In the example above, the option for $114 traded at $3.75 at 3:53 pm on 3/29/19.

Columns five and six are the bid and ask prices. Remember that an options contract is for 100 shares of stock, so you have to multiply the bid and ask prices by 100 to get the total cost for the contract.

Column seven is the change from the previous day’s close for that particular option, with the percentage listed in the column immediately to the right.

The ninth column is volume, or the number of contracts traded that day, with the column to the right showing open interest in this contract. Open interest tells you how many contracts have been bought and sold but haven’t yet been exercised or expired.

The final column is implied volatility. Volatility is linked to premium price; high implied volatility leads to a higher premium and vice versa.

Your options chain may have different information depending on where you get it from; some don’t include implied volatility, for example. Others organize the information a bit differently, but once you know what you should see in an options chain, you should be able to find it no matter how it’s formatted.

It’s a really good idea to spend some time studying options chains—and doing trade simulations with a demo account—before you jump into trading options. Options pricing take into account so many variables, it’s tricky to make winning trades without understanding things like intrinsic value, implied volatility, and time decay. But once you do gain confidence with options, they can be a great way to generate profits and hedge your positions on other trades.

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