Reading an option chain
A walk through every column of a chain, from bid and ask to open interest and implied volatility.
6 minute read
An option chain is the full list of options on one stock for one expiry date. Every broker shows one, and so does GreekGeek.
Read it like a menu. Each row is a price you could lock in, called the strike. The columns tell you what that right costs today and how many other people are ordering it.
Below is a small chain for a made-up stock at $102.40, with options expiring in 30 days. The prices come from the same model as the rest of this course. The numbered markers give an order to read it in. Click a number, or a column heading, to see what it means.
| $96 (in the money) | 7.42 | 7.58 | 7.64 | 312 | 4,120 | 26.8% |
|---|---|---|---|---|---|---|
| $98 (in the money) | 5.73 | 5.86 | 5.71 | 588 | 6,388 | 24.7% |
| $100 (in the money) | 4.22 | 4.32 | 4.33 | 1,204 | 9,815 | 23.3% |
| $102 (in the money) | 2.94 | 3.01 | 2.93 | 2,861 | 12,402 | 22.2% |
| $104 | 1.93 | 2.01 | 2.02 | 3,410 | 8,733 | 21.6% |
| $106 | 1.20 | 1.32 | 1.23 | 1,976 | 7,310 | 21.6% |
| $108 | 0.73 | 0.88 | 0.83 | 845 | 5,096 | 22.0% |
Step 1 on the $102 strike: The stock is at $102.40. The $102 call is in the money.
Why read in this order
The steps follow the questions you would ask before trading. First, where is the stock and which strikes are already in the money? Next, what would it cost to buy or sell right now? Then, can you trust that price? Last, is the option cheap or expensive for the swings it covers?
The spread is a real cost
You buy at the ask and sell at the bid. The fair price sits roughly in the middle, so the spread is money you give up on every round trip.
On the $102 call the spread is $0.07, about 2.4% of the price. On the $108 call it is $0.15, about 18.6%. Strikes far from the stock price trade less, so sellers ask for more room. On a thinly traded stock, spreads can be much wider than this.
Volume and open interest tell you if anyone is there
A price is only useful if someone will trade with you at it. Volume shows today’s activity. Open interest shows how many contracts people are holding. When both are low, expect wide spreads and a last price that may be out of date.
IV lets you compare strikes fairly
A $96 call and a $108 call cost very different amounts, so their prices alone don’t tell you which is expensive. IV puts them on the same scale. In this chain the $96 call has an IV of 26.8% and the $106 call has the lowest, 21.6%. Lower strikes carrying more IV is common on stocks, because traders pay extra to protect against falls.
Try it on real data
Open SPY's full chain and find each column from this chapter. Check how wide the spread is at the money, then ten strikes away.
Open the SPY chain