Option Chain
An options chain, also known as an option matrix, is a listing of all
available options contracts for a given security. It shows all listed puts,
calls, their expiration, strike prices, and volume and pricing
information for a single underlying asset within a given maturity
period. The chain will typically be categorized by expiration date and
segmented by calls vs. puts.
Open interest information tells us how many contracts are open and
live in the market.
OI (open interest) :-
Open interest information tells us how many contracts
are open and live in the market.
Volume
Volume on the other hand tells us how many trades were executed on
the given day. For every 1 buy and 1 sell, volume adds up to 1. For
instance, on a given day, 400 contracts were bought and 400 were
sold, then the volume for the day is 400 and not 800. Clearly volumes
and open interest are two different; buy seemingly similar set of
information. The volume counter starts from zero at the start of the
day and increments as and when new trades occur. Hence the volume
data always increases on an intra-day basis. However, OI is not discrete
like volumes, OI stacks up or reduces based on the entry and exit of
traders.
• Key takeaways from this chapter
• Open Interest (OI) is a number that tells you how many contracts are currently
outstanding (open) in the market
• OI increases when new contracts are added. OI decreases when contracts are
squared off
• OI does not change when there is transfer of contracts from one party to another
• Unlike volumes, OI is continuous data
• On a stand along basis OI and Volume information does not convey information,
hence it makes sense to always pair it with the price to understand the impact of
their respective variation
• Abnormally high OI indicates high leverage, beware of such situations.
