An option chain is the table your broker shows with every available option for a stock. It looks overwhelming at first, but it follows a simple layout. Once you can read it, you can quickly see what an option costs and whether it is easy to trade.
The layout
You first pick an expiration date. The chain then lists strike prices down the middle, with calls on one side and puts on the other. Strikes near the current stock price are usually highlighted, because those options are the most actively traded.
The main columns
| Column | Meaning |
|---|---|
| Bid | The highest price buyers are offering right now |
| Ask | The lowest price sellers will accept right now |
| Last | The price of the most recent trade, which may be old |
| Volume | Contracts traded today |
| Open interest | Contracts currently open, from previous days |
| IV | The implied volatility of that option |
| Delta | How much the option moves per $1 in the stock. See the Greeks |
In, at and out of the money
- In the money (ITM): a call with a strike below the stock price, or a put with a strike above it.
- At the money (ATM): strike close to the stock price.
- Out of the money (OTM): a call with a strike above the stock price, or a put with a strike below it. Cheaper, but more likely to expire worthless.
Spotting costly options
Check liquidity first Important
If the bid is $1.00 and the ask is $1.40, you lose about 40 cents per share ($40 per contract) just by buying and selling straight away. Prefer options with a narrow bid-ask spread, daily volume and healthy open interest. Avoid strikes where the “last” price is from days ago.
Placing the order
Use a limit order and start around the middle of the bid and ask (the “mid”). If it does not fill, move your price a few cents at a time rather than jumping straight to the ask.
Conclusion
Read the chain in this order: expiration, strike, bid and ask, then volume and open interest. That habit alone will save you from many poor fills. New to options? Read options basics.
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