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What is an Option Chain?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 26 September 2016
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    2003-2016
    Conjecture Corporation
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An option chain is a strategy for quoting the prices on various options associated with a given security. This type of listing or chain provides investors with details related to the expiration dates and strike prices associated with the security, as well as identifying whether they are puts or calls. The detail covered in the option chain can help an investor determine his or her strategy in relation to the security, including whether to go with a put or a call as a means of maximizing the chances for earning a return.

By taking into consideration the information that is part of the option chain, it is much easier to project the amount of profit that can reasonably be expected to generate with a given security. This involves working out scenarios using the information at hand and following a logical sequence of events to determine how much return is likely to be generated. From there, the investor can determine if the rate of return is sufficient to justify attempting to buy the shares, establish a certain call or put price and follow through the with transaction.

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The information that is found in the option chain is not static. Updates occur frequently, which also help investors to determine if the movement of the security is in line with their predictions. For example, the current price for the security is likely to change at least daily, moving up and downward depending on what is happening in the marketplace. This daily update to the current price allows an investor to either stick with the current strategy, or to realize that the pricing trend is not moving in the predicted direction and it is time to consider a different approach.

The amount of detail that comes with an option chain can sometimes be intimidating to new investors. Since the detail includes all sorts of information relevant to not only puts and calls, but also to bid/ask pricing, volume, open interest, and strike prices, some may find it overwhelming to go through each portion of the data and figure out which elements are of most relevant to what the investor has in mind. For this reason, it is often a good idea for new investors to seek guidance from an investment professional when first attempting to assimilate the data found in the options chain. Once he or she has become comfortable with understanding the data and using it to make accurate investment decisions, it is easier to rely more on personal instincts and understandings without input from a professional.

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