Before your first options trade, you need to read the options chain well. It is the full grid of every option available on a given stock, organized by expiration date and strike price.
Options chain
Calls are on the right, puts on the left, and strike prices in the middle column.
Bid / Ask
Example: Call AAPL 185 (30 days)| Bid | $4.20 |
| Ask | $4.35 |
| Spread | $0.15 (3.5%) |
| Mid price | 4.275 · target it with limit orders |
* This is a hypothetical illustration and does not reflect actual results. Results vary with market conditions and execution timing.
Always use limit orders. A market order on an option with thin liquidity can fill at the ask or worse.Volume and open interest
Volume = the number of contracts traded today. Open interest (OI) = the total number of open contracts. Both reflect liquidity.
Implied volatility (IV)
The market's estimate of future volatility. A high IV means pricier options. Compare it with the historical IV rank (IV Rank) to judge whether options are relatively expensive.
| Column | What it tells you | How to use it |
|---|---|---|
| Bid/Ask | The real price to enter and exit | Always use limit orders at the midpoint |
| Volume | Current activity | Look for ≥ 100 contracts for liquidity |
| Open Interest | Total open positions | Target strike prices with high OI |
| IV | Expected future volatility | Compare it with the historical IV rank |
| Delta | Approximate probability of expiring ITM | 0.20-0.30 for high-probability positions |
* This is a hypothetical illustration and does not reflect actual results. Results vary with market conditions and execution timing.
