To learn about option chain analysis, you need to start from basics, here are some of the detailed information about option chain.
Option chain mainly consist of the following information.
Our goal is to ignore the noise and focus only on the numbers which can make sense. There are many portals which provides graphical representation of the option chain data like below, which shows clearly which strike has highest OI, over all market trend can be judged by seeing the Net Call change and Net put change etc
Also remember, we should use option chain data as an additional filter for our trading decisions, we cannot solely rely on these numbers alone.
Option Chain:
Keep the following points in mind when it comes to Open Interest.
Many traders mainly use option chain data to find the support and resistance level for the market. One of mistake many beginners make is , whenever there is a large OI built for a call option, people think many traders are buying call options and hence market is going to move up, similarly when there is a large OI built for a put option, people think many traders are buying put options and hence market is going to move down. No, its not. Its just the opposite.
PCR: PUT CALL RATIO
This is of the data that we share every day in our Telegram channel to users, to let people know about the over all market trend. If the call bar graph is higher, means market is bearish and if put green bar is higher, it means market trend is bullish.
Here;s the detailed view on PCR.
MAX PAIN:
It is the level where market is likely to expire. As options market is dominated by sellers, there are different levels of strike prices options were shorted.
All these information was shared in detail through a video tutorial by Sensibull by Zerodha. Please check the video to learn more about the option chain analysis.
source: Sensibull
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