The world of option trading may appear as a complex maze to the new investors, with a multitude of data to process. However, there are many tools to help you navigate smoothly. The Finnifty option chain is one such tool that assists traders in analysing and understanding all the trade-related information for the Nifty stocks and making wise investment decisions.
This article will help you understand what the Finnitfty option chain is and how to read the intricacies, like the strike prices, premiums, open interest, etc., accurately to make the right trading move.
What is the Finnifty Option Chain?
The Finnifty option chain is a detailed chart that provides all the critical information about the available stock option contracts on the Finnifty Index.
It is also known as the Option Matrix, which enables skilled traders to decode the direction of price movements and identify the high and low levels of liquidity. Some specific metrics captured by the Finnifty option chain include executed price, ask price, ask quantity, bid quantity, real-time price, etc.
Reading the Finnifty Option Chain
The Finnifty option chain consists of various components that assist traders in reading the options easily. Here is what each component means.
- Strike Price- When the seller and the buyer agree to carry out the Finnifty Index under a contract at a fixed price, it’s called a strike price. If the price exceeds the strike price, the derivatives trading becomes profitable.
- Spot Price- Spot price can be defined as the current market price of the Finnitfy Index under a contract.
- Option Types- Call and Put are the two option types on the Finnifty chain. A Call option refers to a contract that provides the right to buy at a specific price within a specific date. A Put option extends the right to sell the underlying option at a particular price within a specific date.
- In-The-Money (ITM)- If the spot price is more than the strike price, the call option is known to be ITM.
- At-The-Money (ATM)- When the spot price and strike price are equal, an option is an ATM.
- Out-of-Money (OTM)- A call option will be said to be an ATM if the spot price is below the strike price. On the contrary, the Put option is called OTM when the spot price goes above the strike price.
- Open Interest- Open interest indicates the number of option contracts for a particular strike price and expiration date. It is an indicator of the market sentiment and liquidity.
- Ask Price- The minimum price that a buyer must pay to purchase the option from the seller is known as the ask price.
- Ask Quantity- It indicates the number of contracts available at a particular strike price.
- Bid Quantity- It refers to the total number of buy orders placed for an option for a particular strike price.
- Bid Price- It is the actual value for the option quoted within the last buy order. A price more than the last traded price indicates increasing demand for the option.
Summary
The Finnifty option chain is an excellent tool that guides stock traders and investors and helps them understand the various components of the Finnifty Index. Viewing the charts at regular intervals and tracking the movements on the charts helps them make smart trading decisions.
By following the movement of charts, investors can speculate on the financial markets and generate income through premium collections.
