Options Chain Analysis: Techniques for Trading Success (2024)

In this article, we will discuss:

• What to Look for in Options Chain Analysis?
• Samco’s Integration Options Chains: Not Your Average Data Set
• Techniques for Maximising Trading Success with Samco’s Integrated Option Chain
• Maximise Trading Success with Samco’s Integrated Options Chain

Options trading is a lot more than merely buying or selling calls or put options based on how you expect the market to move. While it may seem like a speculative market segment at first glance, true trading success in the F&O section relies on in-depth data analysis. You need to assess various data points like the strike price of the option, its nature and type, its last traded price (LTP), open interest and more.

Unfortunately, a vast majority of traders only consider options trading as a speculative game. Recent data from the markets revealed that the average individual trader in this segment held an option contract for less than 30 minutes — clearly indicating that not a lot of thought goes into options trading.

To empower traders and ensure they do not fall into this trap, we decided to upgrade the Samco trading platform and include the analytical tools required to make informed trading decisions. This led us down a path of discovery — where we found that one of the key issues plaguing options traders is the lack of access to real-time market data.

This is where Samco’s integrated options chain can make a world of difference. Equipped with extensive real-time data points that affect your strategy choice, this feature in the Samco trading app makes option chain analysis quick and efficient for traders using the Samco trading platform.

What to Look for in Options Chain Analysis?

Before you discover our integrated options chain, you need to have a clear understanding of what to look for in any option chain analysis. The sheer volume of data can be daunting for traders initially, but the pointers outlined below can help you make sense of the data in a typical options chain.

• Strike Price

This is the price at which the option buyer can buy (in the case of a call option) or sell (in the case of a put option) the underlying asset. Options are categorised as in-the-money (ITM), at-the-money (ATM), or out-of-the-money (OTM) based on how their strike price compares to the current price of the underlying asset. You can use this classification to assess how profitable or not an option is.

• Type of Options

Options can be classified as calls and puts. A call option gives the option holder the right to purchase the underlying asset at the strike price. A put option, on the other hand, gives the option holder the right to sell the underlying asset at the strike price. You need to understand the type of option as a part of your option chain analysis to identify a suitable trading strategy.

• Last Traded Price (LTP)

Represents the last price at which an option was traded, the LTP indicates the market value of an option. You can use it to gauge the current demand and supply dynamics for a specific scrip, identify trends and make informed decisions about when to enter and exit a trade.

• Open Interest (OI) and % Change in OI

The OI represents the total number of outstanding option contracts that have not yet been settled. In other words, it measures the liquidity of a particular option. Increasing OI means new money is coming into the market, and decreasing OI signals that positions are being closed.

• Change in Open Interest

This shows the day-over-day percentage change in open interest. In other words, you can use it to understand how new trading activity is affecting the market. A significant increase in OI may indicate that a trend is likely to continue, while a decrease might suggest a weakening trend or a potential reversal.

Samco’s Integration Options Chains: Not Your Average Data Set

While the data points outlined above can be found in standard option chains, we’ve gone the extra mile at Samco Securities and included a lot more than just strike prices, LTP, open interest and the like. In the integrated options chain available in the Samco trading app, you can also find up-to-date information about options Greeks and implied volatility.

Using Options Greeks in option chain analysis helps you understand how an option's price is expected to change in response to different market variables — like the underlying asset's price, the time left till expiration and the implied volatility of the underlying asset. Understanding these Greeks allows traders to anticipate how their options might perform under various market conditions, enabling them to adjust their positions for optimal outcomes.

The implied volatility (IV), on the other hand, measures how much the market expects the price of the underlying asset to move over the life of the option. High IV values suggest that the market expects significant price volatility, which could lead to higher option premiums. In option chain analysis, this metric is crucial for strategies that capitalise on volatility rather than price direction.

By combining insights from the Greeks with IV, you can navigate and exploit market uncertainty, adjust your strategies to hedge against potential risks or even leverage expected market movements for substantial gains.

Techniques for Maximising Trading Success with Samco’s Integrated Option Chain

To maximise trading success using option chains, you need to understand how to use the data gathered from option chain analysis to gain a practical advantage in the markets. Here are some techniques that can help achieve this goal.

• Leverage High Volume and Open Interest

Identify options with high volume and open interest. These options are more liquid, so they’re easier to trade. High liquidity means you can enter and exit positions at competitive prices and reduce cost slippage.

• Use Implied Volatility to Your Advantage

Implied volatility (IV) can suggest critical future price movements. Options with high IV are priced higher due to the anticipated volatility. So, use the IV data to gauge market sentiment and choose options trading strategies accordingly.

• Choose the Right Expiration Date

Selecting an appropriate expiration date is crucial. Short-term options are less expensive and can provide significant returns if the stock moves in your favour quickly. However, they are also riskier due to the limited time for the stock to move.

Conversely, options with a longer term to expiry may be more expensive, but they give the stock more time to reach your target price. To improve your trading success rate, you need to balance the cost of the option with the time you believe the stock will take to move as desired.

• Strike Price Selection

At-the-money (ATM) options balance the cost and potential return but come with higher premiums. On the other hand, out-of-the-money (OTM) options are cheaper and offer higher potential returns — but only if the stock makes a significant move. Naturally, they are also riskier. As a part of your option chain analysis in the Samco trading app, you need to assess your risk tolerance and market outlook before choosing from ATM, OTM, or even in-the-money options based on your goals.

Maximise Trading Success with Samco’s Integrated Options Chain

By integrating these techniques into your trading strategy, you can effectively complete your option chain analysis and navigate the options market more effectively. What’s more, with the integrated options chain in the Samco trading app, you can perform an in-depth evaluation of the market and its impact on your chosen scrip before executing a trade.

By integrating advanced metrics like Options Greeks and more in the chain, we have redefined the scope of options chain analysis. To make the most of these insights and maximise trading success in the options segment, switch to Samco today, complete the Samco account opening process and access comprehensive data points in our integrated options chain right away. The best part? You need not pay any additional fee whatsoever to use up-to-date insights and analytical data on our trading platform.