Chapter 3: How to read an options chain?
An options chain is the map, or full table, that lists every option contract available on a given stock. Learning to read it is the most useful practical step before you press the buy or sell button.
The chain's visual layout (what it looks like on your platform)
When you open an options chain on any trading platform, you will always find it split in the same standard way, which makes comparison easy:
- Left side (Calls): always shows the call options.
- Right side (Puts): always shows the put options.
- Middle column (Strike): holds the strike prices, sorted ascending or descending.
The six core columns (and how to read them well)
For each option contract in the chain, you will find several main columns that set its price, its quality and how the market affects it. Here is how to read them:
| Column | Plain meaning | How do you use it in practice? |
|---|---|---|
| (Bid) | The highest price the buyer is willing to pay right now. | This is the price you get right away if you want to sell your contract. |
| (Ask) | The lowest price the seller will accept to give up the contract. | This is the price you pay right away if you want to buy a new contract. |
| (Volume) | The number of contracts traded (bought and sold) during the current day only. | Tells you how much activity and momentum this specific contract has today. |
| Open interest (OI) | The total number of contracts open in the market that have not yet been closed or settled. | The key liquidity indicator. The higher the number, the easier it is to enter and exit a trade without losing the price spread. |
| Implied volatility (IV) | The market's expectation of how much the stock will swing and move in the future. | Think of it as a "thermometer" for the contract's price: high implied volatility makes contracts very expensive, and low implied volatility makes them cheap. |
| Delta | How much the contract's price changes when the underlying stock moves by one dollar. | It is also used as a rough guide to the chance the contract finishes "in the money" (ITM) at expiration. |
💡 Volume vs. open interest
To make this easier, imagine that options are tickets to a football match:
- Open interest (OI): the total number of tickets the stadium printed and sold to the public that are still in people's hands (for example 10,000 outstanding tickets).
- Volume: the number of times people resold and swapped those tickets among themselves on the black market during the current day only.
⚠️ Golden tip: never use market orders!
Because of the spread between the bid and the ask, using a "market order" means you buy at the higher price or sell at the lower one, which is an immediate loss before the trade even starts.
The fix, always: use a limit order and place it at the mid price between the bid and the ask to get the best possible fill.
Summary and what next?
Reading the chain and picking a liquid contract (a lot of open interest and a tight spread between bid and ask) saves you a hidden cost on every trade. In the next section we move to the most useful practical part: how do time and volatility affect your contract prices every day?
