Option Chain
A form of quoting options prices through a list of all of the options for a given stock. An Option Chain is simply a listing of all option strike prices along with their premiums for a Strike Price. The majority of online brokers and stock trading platforms display option quotes in the form of an option chain.
The premiums are listed with a Bid and an Ask price. If you are selling an option you would be looking at the Bid number. If you are buying an option you will look at the Ask. As an easy reminder, you look at the number NOT in your favor. If you are bringing money in by selling an option you look at the lower number. If you are spending money with the buying of an option you look at the higher number.
The Option Chain above is for Facebook (FB). This Option Chain shows the Strike Prices from $93.50 to $99.50, the symbols that coincides with each Strike Price and the Bid & Ask premiums. This Option Chain is for the January 15th Expiration Date. Below the last Strike Price listed, you will see more Expiration Date choices you would click on if you wanted to buy or sell an option out a bit further. This Option Chain is for Call Options. If you wanted to buy or sell Put Options there will be a button on your program to switch from Calls to Puts.
On this Option Chain I have the $95.50 Strike Price highlighted in yellow. This option and all the options shown are for the Expiration Date of January 15th (2 Days). If I wanted to sell this option, with the symbol of FB 01/15/16 95.50 C, I would receive a premium of $1.40 per share. If I sold 10 contracts the total premium would be $1140. If I wanted to buy this option I would pay a premium of $1.50.
Additional Columns
Above we have the same Option Chain. The only difference is I added a few more columns & settings. You can add or remove columns very easily on any program. You can add the columns you desire so when you bring up a trading window it will be there for easy viewing. The 1st new column I added is between Bid & Ask, it’s called Midpoint. The Midpoint is simply a number between the Bid & Ask. When entering a price to buy or sell an option, many traders will enter the Midpoint. Most time as the underlying stock fluctuates the order will get executed at the Midpoint which will give a better deal than just the Bid or Ask. I say most of the times but it does not mean all of the times. If a stock is moving in only one direction you might not get executed. In the highlighted option above, if I want to sell that option and enter the Midpoint of $1.45 and the stock only moves down, I will not get executed. The Bid is $1.40. If the stock only moves down the higher premium of $1.45 will never get executed because the premium will be moving down with the stock and I will not be able to get the higher premium of $1.45. When entering a price for an option you must watch how the stock is moving.
Other columns added are Intrinsic Value, Time Value and Open Interest. Read the page “Intrinsic Value & Time Value” to understand what they are. I do not have a page on Open Interest but I will be writing on the subject. Open interest will tell you the total number of option contracts that are currently open – in other words, contracts that have been traded but not yet liquidated by an offsetting trade. When you buy or sell an option, the transaction needs to be entered as either an opening or a closing transaction. If you buy 10 of the Facebook 95.50 calls, you are buying the Calls to “open”. That purchase will add 10 to the Open Interest figure. If you wanted to get out of the position, you would sell those same options to “close” and Open Interest would then fall by 10.
Many traders use the Open Interest column to assist in their trading. Trading does not occur in a vacuum. Indicators and reports that show you what other market participants are doing can be a valuable addition to your trading system. Daily trading volume and open interest can be used to find trading ideas you might otherwise overlook.
To continue on the subject of columns, In this next graphic above I removed Intrinsic Value, Time Value and Open Interest and added the Greeks, Delta, Gamma, Theta, Vega and Rho. Read my page on The “Greeks.” Many traders use the Greeks as a trading tool. If you do you can add them to the columns in your trading window. When you look up an option on the Option Chain this information will be available to view.
I hope this page explained exactly what an Option Chain is and how you can add additional desired information to the trading window for easy viewing. I only went over a few. There are 30 or 40 columns of tools you can add. As you get more experience you will decide which tools are the most useful for your trading strategy.