01) Options Chain
As an options trader, you’ll be looking at an options chain very often. So, it’s good to have a strong understanding of each of its common parts.
Let’s start out by looking at AAPL’s options chain on TD Ameritrade.
You’ll see that the chain is grouped in dates. Those are the different expiration dates for contracts which usually include Weekly, Monthly and Yearly (LEAP) options.
Left and Right Side of the Chain
To go the next step deeper into the options chain, you will see the chain is commonly aligned with calls on the left and puts on the right.
The last way the chain is grouped is by the Strike Price of a given contract. We will go into strike price more in a future lesson. It is the price at which the options contract can be exercised.
Note, this does NOT mean the stock has to be above this price to sell your options contract. It just means that when the expiration date is reached, if the stock’s price is equal to or greater than the strike price, you will have the right to buy the stock at that strike price. If the stock is below your strike price, then the contracts expire worthless.
You’ll notice that some of the strike prices are highlighted with an orange background. This means they are In-The-Money (ITM).
For calls, ITM strike prices are less than the underlying stock’s current price.
For puts, ITM strike prices are greater than the underlying stock’s current price.
The opposite is true for Out-of-The-Money (OTM) strike prices
For calls, OTM strike prices are greater than the underlying stock’s current price.
For puts, OTM strike prices are less than the underlying stock’s current price.
Finally there’s a common Moneyness phrase At-The-Money
This just means the strike price is VERY close to the current price of the underlying stock. This is the same for calls and puts
Bids and Asks
Next, let’s look at the Bid and Ask prices. Again, we’ll get more into these in a future lesson, but let’s just discuss the basics of them here. The Bid price can be thought of as the price you can market sell that particular contract. And, the Ask price can be thought of as the price at which you can market buy that particular contract.
Volume and Open Interest
Finally, let’s talk about Volume and Open Interest.
Volume on the options chain is the measure of total contracts traded during a given trading day, which helps to give you insight into which particular strike prices are being traded the most on that day.
Open Interest on the other hand shows you the total contracts being held by investors for the duration of that contract’s lifetime.
So, as long as a particular contract isn’t liquidated by the purchasing investors exercised or offset by another trade, then it will be added to the total Open Interest.
This is a good indicator to see where the largest amount of “bets” are being placed by strike and call or put. We’ll look into this more in a future lesson.