An option chain is every available strike for an underlying, with calls on one side, puts on the other, and the strike prices down the middle. It is the single densest source of information about an options market — and the single most over-interpreted one.
This guide covers what each column means, what it genuinely tells you, and where the popular readings overreach.
The layout
Calls sit to the left of the strike column and puts to the right. Both sides show the same set of columns, mirrored. The strike nearest the current index level is the at-the-money strike, and the chain is usually centred on it.
| Column | What it is | What it is good for |
|---|---|---|
| OI | Open contracts outstanding at that strike | Where positions are concentrated |
| Change in OI | How that figure moved today | Where positions are being built or closed now |
| Volume | Contracts traded today | Current activity and liquidity |
| IV | Implied volatility | How expensive the option is relative to its peers |
| LTP | Last traded price | The most recent print, not necessarily a fill you can get |
| Bid / Ask | Best buy and sell quotes | What you will realistically transact at |
Open interest
Open interest counts contracts that exist and have not been closed. It rises when a new buyer and a new seller create a contract, falls when an existing position is closed, and stays flat when a position simply changes hands.
High OI at a strike means a lot of positions are sitting there. That is genuinely useful information about where participants are committed, and it is also where liquidity tends to be best.
The overreach to avoid
The common claim is that high call OI marks resistance and high put OI marks support. The reasoning sounds plausible and is much weaker than it is usually presented.
The problem is that OI shows how many contracts exist, not who is on which side or why. A large OI figure at a strike could be sellers expecting the index to stay below it, buyers expecting it to go above, or either side hedging something entirely unrelated. The same number is consistent with opposite intentions.
Change in OI, which is more informative
The absolute figure accumulates over the life of a contract. The change tells you what happened today, which is usually the more actionable signal.
Read it against the price move at that strike:
| Price | Change in OI | Usual reading |
|---|---|---|
| Up | Up | New longs being added |
| Up | Down | Shorts covering |
| Down | Up | New shorts being added |
| Down | Down | Longs unwinding |
These readings are conventional and broadly reasonable. They are also inferences, not facts — the data does not identify who initiated the trade. Use them as hypotheses rather than conclusions, and be suspicious of anyone presenting them as certainties.
Volume versus OI
They answer different questions and are routinely confused. Volume is how many contracts traded today and resets daily. OI is how many exist in total and carries over.
A strike can have high OI and almost no volume — a lot of positions, nobody trading today. That strike is a poor one to execute in, because the quoted price may not reflect a fill you can actually get.
Which to use when choosing a strike
For execution, volume and the bid-ask spread matter more than OI. Slippage is one of the main reasons live results trail backtests, and it is worst exactly where volume is thin.
Implied volatility
IV is the volatility the current option price implies, derived by running a pricing model backwards from the market price. High IV means options are expensive relative to the underlying's movement; low IV means they are cheap.
IV is not a forecast. It is a restatement of the price in a unit that lets you compare strikes and expiries on a common footing — which is genuinely useful, and quite different from predicting anything.
Why IV differs across strikes
You will usually see IV higher at strikes far from the money than at the money. That shape is normal and reflects persistent demand for tail protection — it is not a mispricing you have discovered.
For option sellers, IV is the closest thing the chain offers to a measure of what you are being paid for the risk you are taking. For buyers, it is a measure of how much you are paying for optionality. Neither tells you which way the index will go.
Bid-ask spread, the column that costs you money
LTP gets the attention and the spread determines your cost. A wide spread means you lose meaningfully on entry and again on exit, before the strategy has done anything.
On a multi-leg structure this compounds: four legs means four spreads on the way in and four on the way out. A strategy with a thin edge can be entirely consumed by spread on illiquid strikes.
- Prefer strikes with real volume today, not just high OI
- Check the spread before assuming the quoted price is achievable
- Count the spread cost across every leg, both directions
- Be most careful in the first minutes of the session, when spreads are widest
A practical reading order
1
Find the at-the-money strike
Everything else is read relative to where the index actually is.
2
Scan change in OI across nearby strikes
This tells you what is being built today, which is more useful than the accumulated figure.
3
Check volume at the strikes you would actually trade
Liquidity decides whether your intended price is realistic.
4
Look at IV across the strikes in your structure
It tells you whether you are buying or selling relatively expensive options.
5
Check the spread last, before committing
It is the cost you pay regardless of whether the trade works.
Reading the chain for a specific decision
General guidance is less useful than a worked case. Suppose you are selling an at-the-money straddle and want to confirm the strikes are tradeable.
1
Identify the ATM strike
The one nearest the current index level. Both your legs sit here.
2
Check volume on both the call and the put
Not OI — volume today. You need both sides actively trading, not just one.
3
Check the spread on both
Add them together. That combined figure is what entry costs before the position has done anything, and you pay it again on exit.
4
Compare IV against nearby strikes
An ATM IV far below neighbouring strikes means you are being paid less for the risk than the rest of the chain suggests.
5
Look at change in OI at your strike
Heavy fresh selling at the strike you are about to sell is worth noticing, even if it does not change the decision.
That sequence takes a minute and catches the two failures that actually cost money: a strike nobody is trading, and a spread wide enough to eat the edge.
Common misreadings
| The claim | Why it overreaches |
|---|---|
| High put OI means support | OI shows contracts, not intent. The same figure fits opposite views |
| Max pain predicts where the index closes | A descriptive statistic about positioning, not a forecast |
| Rising PCR is bullish | Depends entirely on who is building what, which the ratio does not say |
| High IV means a big move is coming | IV is a price restatement, not a prediction of direction or magnitude |
| LTP is the price you will get | The spread decides your fill, and LTP may be stale |
None of these numbers are useless. They describe positioning accurately. The overreach is always the same move: treating a description of where positions sit as a prediction of where price goes.
What the chain will not tell you
It is worth closing with the limits, because option chain analysis attracts more confident claims than the data supports.
- Direction. Nothing in the chain reliably predicts which way the index moves.
- Who is positioned. OI does not distinguish a directional bet from a hedge.
- Intent. The same figure is consistent with opposite views.
- Tomorrow. Positioning changes, often substantially, overnight.
Arthalab's Options Analysis screen shows the chain alongside payoff and greeks modelling, so you can see a structure's behaviour rather than reading raw columns and inferring. If you are building something to run automatically, the strategy builder is where strike selection rules get defined once rather than chosen by hand each day.
The short version
The chain describes positioning accurately and predicts direction not at all.
- OI counts contracts that exist, not who is positioned which way or why
- Change in OI is more informative than the accumulated figure
- Volume and spread decide execution; OI does not
- IV restates price in a comparable unit — it is not a forecast
- The spread is the cost you pay whether or not the trade works
Every popular overreach in option chain analysis is the same move: treating a description of where positions sit as a prediction of where price goes.
Frequently asked questions
It describes the balance of put and call positions, not intent. The same ratio is consistent with opposite views depending on who is building what, so treat it as context rather than a signal.
It is the strike at which the largest value of options would expire worthless. It is a descriptive statistic about positioning, not a forecast of where the index will close.
Volume, for execution. High OI with no volume today means a lot of positions and nobody trading, which is a poor place to get filled at the price you expect.
The number of contracts outstanding at that strike which have not been closed. It rises when new positions are created and falls when they are closed.
That is the common claim and it is weaker than usually presented. OI shows how many contracts exist, not who is positioned which way or why. Treat it as information about positioning, not a price forecast.
Volume is contracts traded today and resets daily. Open interest is contracts that exist in total and carries over. A strike can have high OI with almost no volume.
How expensive the option is relative to the underlying's movement, expressed in a unit that lets you compare across strikes and expiries. It is not a prediction.
Demand for protection against large moves is persistently higher than a simple model assumes. The resulting shape is normal and well known, not an opportunity you have spotted.
That depends on your strategy, but liquidity should constrain the choice. A theoretically ideal strike with no volume and a wide spread will cost you more in execution than the theory gains you.
No. It describes positioning, not intent or outcome. Claims that it reliably predicts direction should be treated with scepticism.
Under Options Analysis in the dashboard, with payoff and greeks modelling alongside the chain.
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