Option Chain Terms – Comprehensive Explanation

1. Strike Price

The strike price (also called exercise price) is the fixed price at which the buyer of an option can buy (call option) or sell (put option) the underlying asset upon expiry.

For call options, it is the price at which the underlying asset can be purchased.

For put options, it is the price at which the underlying can be sold.

Example:

If a stock trades at ₹5,000 and the call option has a strike price of ₹5,100:

Buying the call allows you to buy the stock at ₹5,100, regardless of the market price.

Buying the put allows you to sell the stock at ₹5,100, even if the market falls to ₹4,800.

Strike prices are usually set at regular intervals, known as strike intervals, e.g., ₹50, ₹100, ₹500 depending on the underlying asset.

2. Expiry Date

The expiry date is the date on which the option contract ceases to exist. Options in India typically expire on the last Thursday of the contract month.

European-style options can only be exercised on the expiry date.

American-style options can be exercised any time before or on the expiry date.

Expiry influences option premiums:

Longer expiries usually have higher premiums due to increased time value.

Short-dated options experience faster time decay (theta).

3. Option Type (Call / Put)

Options are classified into Call Options and Put Options:

Call Option: Right to buy the underlying at the strike price. Traders buy calls when expecting price increase.

Put Option: Right to sell the underlying at the strike price. Traders buy puts when expecting price decline.

The option chain displays both call and put options for each strike price side by side for easy comparison.

4. Premium / Last Traded Price (LTP)

The premium is the price paid by the buyer to purchase the option. On an option chain, this is displayed as the Last Traded Price (LTP).

Premium consists of Intrinsic Value (IV) and Time Value (TV):

Intrinsic Value: The difference between current underlying price and strike price (only if in-the-money).

Call Option: Current Price - Strike Price (if positive)

Put Option: Strike Price - Current Price (if positive)

Time Value: Extra value due to remaining time till expiry and volatility.

Options closer to expiry have lower time value.

Premium is highly influenced by volatility, time decay, and demand-supply.

5. Open Interest (OI)

Open Interest is the total number of outstanding contracts that have not been squared off (closed) or exercised.

High OI indicates liquidity and potential support/resistance levels at that strike.

Increasing OI along with rising prices may indicate bullish sentiment; decreasing OI may indicate weak trend.

Example:

If 5,000 call option contracts at strike ₹5,000 are outstanding, it means traders have taken positions worth 5,000 contracts, reflecting market interest in that price point.

6. Volume

Volume indicates the number of contracts traded during a particular session.

High volume reflects active trading and market participation.

Comparing volume with open interest helps gauge whether new positions are being initiated or closed.

Interpretation:

Rising price + rising volume = Strong bullish trend

Falling price + rising volume = Strong bearish trend

7. Implied Volatility (IV)

Implied Volatility (IV) is the market’s expectation of future volatility of the underlying asset.

Higher IV leads to higher premiums.

Lower IV means cheaper options, reflecting market stability.

IV is crucial for traders using strategies like straddles, strangles, and spreads because these depend on expected volatility movements.

Example:

If stock X has IV of 25%, traders expect the stock price to move significantly; if IV is 10%, minimal movement is anticipated.

8. Greeks (Delta, Gamma, Theta, Vega, Rho)

Greeks quantify risk and sensitivity of option prices to various factors:

Delta (Δ) – Measures change in option price per ₹1 change in underlying.

Call Delta ranges 0–1; Put Delta ranges 0 to -1.

Gamma (Γ) – Measures rate of change of delta.

Higher gamma = option more sensitive to price changes.

Theta (Θ) – Measures time decay; negative for long options.

Vega (V) – Measures sensitivity to implied volatility.

Rho (ρ) – Measures sensitivity to interest rates.

Greeks allow traders to hedge risks and plan multi-leg strategies effectively.

9. Bid and Ask

Bid Price: Price buyers are willing to pay for an option.

Ask Price (Offer Price): Price sellers are asking.

Bid-Ask Spread: Difference between bid and ask, reflecting liquidity.

A tight spread indicates active trading, while a wide spread indicates illiquid options.

10. In-The-Money (ITM), At-The-Money (ATM), Out-Of-The-Money (OTM)

ITM: Option has intrinsic value.

Call: Strike < Underlying Price

Put: Strike > Underlying Price

ATM: Strike price ≈ Underlying Price

OTM: Option has no intrinsic value.

Call: Strike > Underlying Price

Put: Strike < Underlying Price

These classifications help traders choose options based on risk appetite and strategy (speculation vs hedging).

Conclusion

An option chain is more than just numbers; it is a market sentiment map showing where traders are positioning themselves, potential support/resistance zones, and volatility expectations. Understanding terms like strike price, premium, open interest, volume, IV, Greeks, bid/ask, and moneyness enables traders to make informed decisions, structure strategies, and manage risk effectively.

By combining quantitative data (LTP, OI, volume) with qualitative interpretation (IV, Greeks), an option chain becomes an indispensable tool for both speculative and hedging strategies in the financial markets.