Options

Everything on an option chain is built from a small number of ideas. Learn these twenty-three and the screen stops being a wall of numbers.

Start with the contract, not the chain

An option is a contract with four moving parts: which underlying it is written on, at what strike price, until what expiry, and for what premium. A call (CE) gives its buyer the right to buy at the strike; a put (PE) gives the right to sell. Everything else on this page is a consequence of those four numbers.

The premium splits cleanly in two. Intrinsic value is what the option would be worth if expiry were right now — for a call, how far the underlying is above the strike, and nothing below zero. Everything else is time value, which is the market charging for the chance that the position gets better before expiry. Time value is the whole reason an out-of-the-money option costs anything at all, and it is the part that goes to zero on expiry day whether or not the market moves.

Moneyness — ITM, ATM, OTM — is just where the strike sits relative to the spot price. It matters because it decides how the two halves of the premium are mixed. A deep ITM option is nearly all intrinsic value and behaves almost like the underlying; a far OTM option is entirely time value and behaves like a lottery ticket that is quietly expiring.

Open interest is the part people misread

Open interest is the number of contracts currently open at a strike. It is not volume. Volume counts every trade in the session; open interest counts positions still standing at the end of it. Two traders can pass one contract back and forth all day and produce enormous volume with no change in open interest at all.

Which is why change in OI is the number worth watching rather than the level. Read together with what price did, it tells you which side is being added to. Price up with OI up is fresh buying. Price down with OI up is fresh selling. Price up with OI down is short covering — a rally on people getting out, not people getting in — and price down with OI down is long unwinding. Those four combinations do most of the work in reading a chain, and the cheat sheet lays each of them out with what it implies.

Large open interest at a strike is often described as a wall. The honest version: option writers — the sellers, usually the better-capitalised side — have taken a position that pays them if the market stays away from that level. That is a statement about where a lot of money has been placed, not a barrier the market is obliged to respect. It gets broken regularly, and when it does, the move is often violent precisely because those positions have to be closed.

The summary numbers, and what they're worth

PCR divides put open interest by call open interest. Above one means more puts are open than calls, usually read as bullish because puts are predominantly written by people expecting the market to hold up. It is a crude number and it is best used as a trend rather than a level — a PCR moving from 0.7 to 1.1 through a session says more than 1.1 does on its own.

Max pain is the strike at which the total value of options expiring worthless is highest, which is to say the price that hurts the largest number of option buyers. There is a persistent belief that the market gravitates toward it into expiry. Treat it as a reference point that a lot of participants are watching, not a magnet with a mechanism behind it.

Implied volatility is the market's own estimate of how much the underlying will move, backed out of the premium being paid. On its own it means very little — 12% is not high or low until you know what this underlying's IV usually is. That is what IV rank exists for: it places today's reading inside its own recent range, which is the difference between a number and a judgement. High IV means options are expensive, which favours selling them; low IV means they are cheap, which favours buying.

The expected move takes the same information and states it as a range. The at-the-money straddle price is roughly what the market is charging for the underlying to move at all by expiry — so it is also, roughly, the move the market is pricing in. It is the single most useful number on the chain for a trader deciding whether a target is realistic.

Structures, briefly

A straddle buys a call and a put at the same strike, and a strangle does the same at strikes either side. Both are bets on movement without a direction — and both are usually bets against time, because they are paying two lots of time value for the privilege.

The spreads run the other way. A bull call spread buys one call and sells a higher one, capping the gain in exchange for a much lower cost. An iron condor sells a call spread and a put spread at once and collects premium as long as the market stays in the middle. A covered call sells a call against shares already held, which is the closest thing in options to being paid rent.

The pattern is the same throughout: every option structure trades one thing away to get another. Unlimited upside for lower cost, income for capped gains, direction for time. There is no version that gives you all three.

All 23 terms in Options

Alphabetical, each with a worked example. Every one of these is searchable from the glossary index.

At The Money (ATM)

The strike closest to the current spot price. Has the most time value and the fastest theta decay. Highlighted as the ATM row in the option chain.

e.g. Spot 24080 → the 24100 strike is the ATM row (both CE and PE trade purely on time value).

Bull Call Spread

Buy a lower-strike call and sell a higher-strike call to cut cost. Caps both the premium paid and the maximum profit — a cheaper, defined-risk bullish bet.

e.g. Buy 24000 CE (₹120), sell 24200 CE (₹50) → net cost ₹70; max profit 200 − 70 = ₹130 per unit if NIFTY ≥ 24200.

Call Option (CE)

A contract giving the buyer the right (not obligation) to buy the underlying at a fixed strike price before/at expiry. Buyers profit when the price rises. In NSE option chains calls are labelled CE.

e.g. Buy NIFTY 24000 CE. If NIFTY expires at 24200, the call is worth ≈200 points.

Change in OI

How much OI changed today at a strike. Combined with price it reveals positioning: long buildup, short buildup, long unwinding or short covering.

e.g. OI ↑ + price ↑ = fresh longs (long buildup). OI ↑ + price ↓ = fresh shorts (short buildup).

Covered Call

Holding the stock and selling a call against it to earn premium income. Caps upside above the strike but cushions small declines.

e.g. Own 500 RELIANCE at ₹2900; sell the 3000 CE for ₹35 → pocket ₹35/share unless it rallies past 3000.

Expected Move

The price range the options market implies for a period, derived from the ATM straddle price. A quick read of how big a move traders are pricing in before expiry.

e.g. ATM straddle ≈ ₹300 ⇒ market expects NIFTY within ±300 points by expiry (~68% odds).

Expiry

The date a contract ceases to exist. NSE index options expire weekly and monthly (last Thursday for monthly). At expiry, ITM options settle to intrinsic value; OTM expire worthless.

e.g. A weekly NIFTY option bought Monday expires that Thursday — 3 days of theta to burn through.

Implied Volatility (IV)

The market's forecast of how much the underlying will move, baked into the option price. High IV = expensive options. IV rises before events (results, budget) and collapses after — the IV crush.

e.g. A stock's IV jumps from 25% to 60% the day before results; after the announcement it crashes back to 28% and option premiums halve overnight.

In The Money (ITM)

An option with intrinsic value. A call is ITM when spot > strike; a put is ITM when spot < strike. Higher premium, higher delta.

e.g. Spot 24100: the 24000 CE is ITM (100 pts in), and the 24200 PE is ITM (100 pts in).

Intrinsic Value

The part of an option's premium that would be real money if exercised now. For a call = spot − strike (if positive); for a put = strike − spot. Zero for OTM options.

e.g. Spot 24100, 24000 CE → intrinsic = 24100 − 24000 = 100. If premium is 140, time value is 40.

Iron Condor

A defined-risk, range-bound strategy: sell an OTM call spread and an OTM put spread. Profits if price stays between the short strikes; losses are capped.

e.g. Sell 24300 CE / buy 24400 CE, and sell 23700 PE / buy 23600 PE — you keep the net credit if NIFTY expires between 23700 and 24300.

IV Rank / IV Percentile

Where current IV sits versus its own past year. IV Rank near 100% = options are historically expensive (favour selling); near 0% = cheap (favour buying).

e.g. IV is 40%; its 1-year range was 20%–50% → IV Rank = (40−20)/(50−20) = 67% (on the pricey side).

Max Pain

The strike where the most option buyers lose money at expiry — i.e. where option writers pay out the least. Price often gravitates ('pins') toward it near expiry.

e.g. If max pain sits at 24000 with NIFTY at 24150 on expiry morning, the spot often drifts back toward 24000.

Open Interest (OI)

The total number of outstanding contracts still open at a strike. Rising OI = new positions being built; falling OI = positions being closed. High Put OI often marks support; high Call OI marks resistance.

e.g. 24000 PE has the highest OI on the chain → the market is treating 24000 as a support floor.

Option Writing (Selling)

Selling an option to collect the premium. The writer profits from time decay and falling IV but carries large (sometimes unlimited) risk. Requires margin.

e.g. Sell a 24500 CE for ₹40. Keep the full ₹40 × 75 = ₹3,000 if NIFTY stays below 24500 at expiry.

Out of The Money (OTM)

An option with no intrinsic value — only time value. Cheap and lottery-like: needs a big move to pay off. A call is OTM when spot < strike; a put when spot > strike.

e.g. Spot 24100: the 24500 CE (₹15) is OTM — worthless at expiry unless NIFTY climbs past 24500.

Premium

The price you pay to buy an option (or receive to sell one). Made up of intrinsic value + time value. Shown as LTP in the chain.

e.g. A 24000 CE quotes at ₹120 → one lot (75) costs 120 × 75 = ₹9,000.

Put Option (PE)

A contract giving the buyer the right to sell the underlying at a fixed strike. Buyers profit when the price falls. Often used as insurance for a portfolio. Labelled PE on NSE.

e.g. Buy NIFTY 24000 PE. If NIFTY expires at 23800, the put is worth ≈200 points.

Put-Call Ratio (PCR)

Total Put OI ÷ total Call OI. A contrarian sentiment gauge: PCR > 1 = more puts (often oversold/bullish), PCR < 1 = more calls (often overbought/bearish). Extremes matter more than the exact number.

e.g. Put OI 90L, Call OI 60L → PCR = 90 ÷ 60 = 1.5 (put-heavy, leaning bullish).

Straddle

Buying (or selling) a call and a put at the same strike. Long straddle profits from a big move in either direction; short straddle profits from a quiet, range-bound market.

e.g. Buy 24000 CE (₹120) + 24000 PE (₹110) = ₹230 cost. Profits if NIFTY expires beyond 24230 or below 23770.

Strangle

Like a straddle but using OTM strikes — a cheaper bet on a big move (long) or on the price staying inside a range (short).

e.g. Buy 24300 CE (₹50) + 23700 PE (₹45) = ₹95 — cheaper than a straddle, but needs a bigger move to pay off.

Strike Price

The fixed price at which an option can be exercised. The option chain lists a ladder of strikes above and below the current price.

e.g. With NIFTY at 24080, you can trade the 24000, 24050, 24100, 24150… strikes.

Time Value (Extrinsic)

Premium beyond intrinsic value — what you pay for the possibility the option moves further ITM before expiry. Decays to zero at expiry (see Theta).

e.g. An ATM option priced at ₹90 with zero intrinsic value is 100% time value — it erodes to ₹0 by expiry if the spot doesn't move.

Definitions are written for people learning to read a market screen, not as legal or regulatory definitions, and nothing on this page is investment advice — see the disclaimer. Spotted something wrong or unclear? Tell us.