Nifty Option Chain

What is Nifty Option Chain?

Nifty Option Chain also known as Nifty Option Matrix, shows a listing of all available option contracts (puts as well as calls), for the NSE index Nifty 50.

Significance of Nifty Option Chain.

Nifty Option Chain enables quick scanning of activity, open interest (OI), and price changes. This enables traders to quickly find a security's trading activity, volume, interest by strike price and time to maturity.

What Nifty Option Chain shows you?

Nifty Option Chain is divided into two parts: call options and put options.

• Call options: Call is an option contract that gives you the right but not the obligation to buy the underlying asset at a predetermined price before or at the time of expiry.
• Put Option: Put is an option contract that gives you the right but not the obligation to sell the underlying asset at a predetermined price before at the time of expiry.
• Both call and put options can be either in the money or out of the money. Now, this information can be highly important in helping you decide, which option you should invest in.

If both parties (buyer and seller) to the trade are initiating a new position, open interest will increase by one contract. If both traders are closing an existing position, the open interest is going to decline by one contract. If one old trader passes off his position to a new trader, open interest will remain the same. Increase in OI suggests that new money is flowing into the marketplace. The result will be that the present trend is likely to continue. Decrease in OI suggests that the market is liquidating, implying that the prevailing price trend is nearing to an end.

In order, to determine the total OI for any given market, we only need the OI data from one side or the other, buyers or sellers, and not the sum of both. Open interest can be a measure of market activity. Little or no open interest implies that either there are no opening positions, or nearly all the positions have been closed.

High open interest suggests that there are many contracts still open, which means market participants will be watching the market closely.

Open interest is often used as an indicator of trend strength. As rising open interest implies additional money and interest coming into a market. It is generally perceived as an indication that the existing market trend is gaining momentum or is likely to continue.

Many technical analysts are of the thought that knowledge of open interest can present useful information about the market.

Technical analysts are of the belief that volume precedes price, implying that the loss of either the upside price pressure in an uptrend or the downside pressure in a downtrend will be revealed in the volume figures before presenting itself as a trend reversal. The rules that have been set for both volume and open interest are combined because of their relationship.

Do note, if there is an abnormally high OI backed by an accelerated increase or decrease in prices then be careful. This situation simply means that there is a lot of euphoria and leverage is being built up in the market. In situations like these, even a small incident could trigger a lot of panic and disturbance in the market.

I hope the above schedule helped you understand how OI works. You might have heard the phrase that FnO is a zero-sum game, well now you know why it is termed like that. The OI just indicates the amount of open positions that are there in the market. If we allot a plus or a positive (+) sign to a long (buy) position and minus or a negative (–) sign to a short (sell) position and add up the long and short positions, the sum will always be equal to zero. For every option buyer, there must be an option seller.