Imagine you could see every single bet being placed in the market right now. You could see where the most money is sitting, where traders are scared, and where the "Big Players" (FIIs and DIIs) have built their walls. The Option Chain is exactly that tool. It is a real-time list of all available option contracts for a specific asset.
If you only look at a price chart, you are seeing what happened. When you look at an Option Chain, you are seeing what people expect to happen. In this module, we will learn how to decode this table to find Support, Resistance, and market sentiment.
1. Anatomy of an Option Chain
An Option Chain is usually divided into two sides: Calls (CE) on the left and Puts (PE) on the right. In the center, we have the Strike Price, which acts as the spine of the table.
| CALLS (CE) | CENTER | PUTS (PE) | ||||
|---|---|---|---|---|---|---|
| OI | Chng OI | LTP | STRIKE | LTP | Chng OI | OI |
| 45,200 | +200 | 240 | 22300 | 15 | -10 | 5,000 |
| 58,000 | +1.2k | 160 | 22400 | 35 | +50 | 12,400 |
| 120,500 | +25k | 90 | 22500 | 92 | +15k | 88,000 |
| 22,000 | -5k | 40 | 22600 | 165 | +800 | 42,000 |
Key Columns Explained:
- OI (Open Interest): The total number of open contracts. High OI means a lot of traders are active at that strike.
- Change in OI: Shows if traders are entering or exiting positions today.
- LTP (Last Traded Price): The current premium of that option.
- The Shading: Notice the yellowish shading. On the Call side, strikes below the Spot are shaded (ITM). On the Put side, strikes above the Spot are shaded (ITM).
2. Identifying Walls: OI Support & Resistance
To read the option chain, you must think like an Option Seller (Writer). Why? Because selling an option requires 10x more margin than buying one. Therefore, "Smart Money" (Institutional investors) are usually sellers. They are the ones who build the "walls" in the market.
A. Resistance (Call OI)
The Strike Price with the Highest Call OI acts as a strong Resistance. Call sellers are betting that the market will not cross that level. In our example above, 22,500 is a massive resistance wall.
B. Support (Put OI)
The Strike Price with the Highest Put OI acts as a strong Support. Put sellers are betting that the market will not fall below that level. In our example, 22,300 is a strong support floor.
3. Interpreting "Change in OI"
Looking at the total OI is good, but looking at the Change tells you what's happening right now.
- Fresh Longs: Price Up + OI Up (Bullish).
- Short Buildup: Price Down + OI Up (Bearish).
- Profit Booking: Price Down + OI Down (Weakness).
4. Put-Call Ratio (PCR)
The PCR is a single number that summarizes the sentiment of the entire Option Chain. It is calculated by dividing the total Put OI by the total Call OI.
PCR = Total Put OI / Total Call OI
- PCR > 1.2: Bullish sentiment (More Puts sold).
- PCR < 0.7: Bearish sentiment (More Calls sold).
- Extreme PCR (Over 1.6 or Under 0.5): Oversold/Overbought. Market might reverse!
5. Max Pain: The Market's Magnet
There is a theory called "Max Pain" which suggests that the market will expire at a Strike Price where the most Option Buyers will lose money. Option Sellers (the big players) want to expire the market where they have to pay out the least. You can find "Max Pain calculators" online that analyze the Option Chain to predict the most likely expiry level.
Summary of Module 08
- The Option Chain is a data-driven map of market sentiment.
- Think like an Option Seller to find Support and Resistance.
- Highest Call OI = Resistance; Highest Put OI = Support.
- Negative Change in OI indicates panic among the sellers (Short Covering/Long Unwinding).
- PCR helps you identify if the market is over-leveraged in one direction.
Now that you can read the "mind" of the market through the Option Chain, we need to zoom out and look at the most important sentiment indicator derived from it. In the next module, we master the Put-Call Ratio (PCR) in depth.