School of Stocks Reading Option Chain using Volume & OI

On the other hand, open interest that does not confirm the price action indicates that the trend is on a weaker footing and could soon run out of steam. A 5-day email course with amazing tips on trading, different trading instruments, and how to finalize a trading system. The exciting aspect of the book is that the author has made every important minute topic a separate chapter. For example, an individual chapter for ‘Volatility,’ ‘Strike Price selection,’ ‘Time Value,’ etc. Check out these Wikipedia articles on Options Trading and Financial Derivatives. They’ll give you an overview of the field and set the stage for the books you’re about to explore.

  1. Simultaneously, those who have given up on options trading because of the fear of Derivatives should find this book as encouraging as it is mathematical.
  2. Most recently, she was the managing editor of DailyWorth, a finance-based media destination for women.
  3. So it is always better to use some technical analysis concepts to decide the direction and magnitude of the underlying instrument to take the options trade (directional strategy).
  4. In a nutshell, what this book achieves for its readers is that it gives a clearcut idea of the difference between a trader that speculates and an investor that calculates.

Fresh Put writing between strikes 4500 and 4800 suggests that this region could act as strong support zone going forward. Having said that, short unwinding of Calls between 4500 and 4800 suggests that the underlying could break above the upper end of this range. We have seen how Option Chain can be used to get a holistic picture of the underlying asset that is being monitored. However, we would like to caution the reader that Option Chain is not a substitute for other forms of analysis, such as Fundamental and Technical analysis. Instead, it must be used to compliment the other forms of analysis, especially when building positions in options. Taking trading decisions just based on observations made fromthe Option Chain data can be quite risky.

Binary Options Unmasked

This book has long been read by options market professionals and has been called the “bible” by options traders. Understanding how market volatility relates to options pricing is key to helping traders evaluate fair values in the options market. Natenberg’s easy-to-follow descriptions help readers understand the key concepts involved in trading options, such as risk management, the relation of options to their underlying assets, volatility, and options pricing. On the Call side, we can see that an increase in Option price has been accompanied by a decrease in OI, which is indicative of short unwinding by traders who had written Calls previously. On the Put side, notice that the decrease in Option price has been accompanied by an increase in OI, meaning fresh shorts are being written.

Then dive inside the ‘Option Course’ to know about different intraday options trading strategies to trade in Nifty and Banknifty. Undoubtedly it has been one of the popular books on options trading for many years. The new version of the book contains many new chapters to explain the recent dynamic behaviors of the market along with updated charts, statistics, and strategies. If you were looking for a comprehensive option chain analysis books list of books on option trading that is structured around the experience level of an investor, then you are going in the right direction. It is important to depend on a resource that matches your requirements and current knowledge base. In a nutshell, what this book achieves for its readers is that it gives a clearcut idea of the difference between a trader that speculates and an investor that calculates.

Options Trading: QuickStart Guide – The Simplified Beginner’s Guide To Options Trading

Volume and open interest tell a lot about the market sentiment, in terms of the positioning of buyers and more importantly that of sellers.Notice here the usage of the word ‘importantly’. Thereason why I have used this is because option writing (i.e. selling) not only requires more margin, but it is also much riskier. Hence, it is usually done by professional traders and large market participants such as FIIs and funds. On the other hand, option buying is usually done by small market participants, such as retail traders. Hence, when lookingat theOption Chain, think from the writer’s perspective and not from the holder’s perspective.

What is Option Chain?

So it is always better to use some technical analysis concepts to decide the direction and magnitude of the underlying instrument to take the options trade (directional strategy). I have seen many successful options traders who continuously generate profits with simple options strategies by taking the time decay (theta) parameter in their favor. The introduction of weekly options in Indian markets helped all these traders. Whether you’re a newbie who’s just getting started or an experienced trader looking for new strategies, there’s something for everyone.

VWAP OF Rs. 25 which means that till this price the options sellers were aggressively selling. When we come below we can see on the option chain table are Call and Put written. There are four columns of information that traders focus on to assess current market conditions. So far, we have talked about Option Chain analysis pertaining to Nifty and Bank Nifty. However, Option Chain analysis can also be applied to stocks, especially the top stocks that are a constituent of the Nifty index.

Following is the list of three books that a beginner-level investor or trader can read before going towards more advanced concepts of the derivatives market. In general, these are the books for learning stock market even if one isn’t interested in derivatives trading. A complete list of every option (put and call) that can be traded on a specific underlying asset, such as stocks, currencies, commodities, or indices, is known as an option chain. For various strike prices, it gives information on premium, volume, open interest, etc. Before we start, keep in mind that in options segment, for every buyer, there is a seller. If one party to the trade is buying, say, 50 option contracts, then on the opposite side there are sellers who are selling 50 option contract.

Others take a more holistic view, discussing not just the mechanics, but also the psychology and strategy behind successful trading. Soon the book moves towards advanced mathematical concepts of rebalancing the gamma and parameters or greeks of Options positions. But instead of jumping straight into advanced concepts, the primary introduction has been given to the sensitivity of the options position to changes in price, volatility, time and other factors. Precisely speaking, the book never goes out of context and is always about making more profits and cutting losses in options trading. Among its past readers, this book is particularly celebrated for its rational and illustrative account of the VIX or volatility index.

Similarly, as OTM Puts have strikes that are below the underlying price, the strike price of OTM Puts often acts as support for the underlying price. Hence, keep in mind that in an Option Chain, OTM Call strikes act as resistance, while OTM Put strikes act as support. In the case of the above example, 12200, 12400,and are resistances while 12000, 11600,and are supports. Meanwhile, as Call and Put have maximum OI, these are the strongest resistance and support, respectively, in the option series under observation (marked in red in the image above). What this means is that as of now, market participants expect Nifty to move in a range of and for the current series. In a similar way, the user can also look at the option chain for other index options as well as for various stock options that are traded on the NSE.

He has trained over thousand students so far and made them successful traders. In this Chapter, we will study about some of the important concepts that we have not studied so far in the Options Module. It is equally important to understand each of these concepts, as they are extremely useful, especially when trading options. Options Greeks include the different parameters which affect the options premium. For example, ‘Delta’ indicates the options’ price sensitivity in relation to changes in the underlying instrument’s price. This book is packed with many real-world examples to demonstrate how to create your own small hedge fund by applying the basic framework model of insurance companies.

Options And Options Trading – A Simplified Course (

If you want a practical understanding of becoming an expert in option chain analysis, watch the full video at the end of this blog. Trading volume, or the number of contracts that change hands in a given day, indicates how much liquidity there might be for any given option. Open interest, meanwhile, measures the total number of options outstanding on each strike and maturity, allowing you to gauge the scale of market commitment. Instead, as the underlying price changes, the colour of the option chain can also change when a few options move ITM while a few others move OTM.

And once a reader is done with these concepts, the contents of the book shifts gears towards more advanced paradigms of options trading e.g. Advanced trading strategies, pricing models volatility considerations, and risk management techniques specific to options trading. A full list of all put and call options (both accessible for trading on a specific underlying asset, such as stocks, currencies, commodities, or indices) is known as an option chain. It includes information on premium, volume, open interest, and other factors for various strike prices. An option chain often called an options matrix, is a list of all potential options contracts for a particular security.

Similarly, for Puts, maximum option writingis at strike followed by and strikes. See that huge open interest is usually built at strikes that are OTM (the Nifty price at the time of writing was 12098). This book is specially written for beginners and intermediate-level traders. This book starts with the basic concepts of options but slowly brings up all the topics of option chains.