Other option chains will show data for individual stocks, whereas the Bank Nifty is an index of several banking stocks. As a result, the Bank Nifty Options Chain provides a comprehensive overview of the banking industry in general.
Understanding the columns in the Bank Nifty Option Chain
The Bank Nifty Option Chain is divided into two parts – call options and put options. Each part contains various columns that provide information about option contracts. Here’s what each column represents:
- Strike price: This is the price at which the option can be exercised. It can vary by 50 or 100 rupees.
- Open interest: Open interest is the total number of outstanding contracts at a particular strike price and expiration. It is calculated at the end of each trading day.
- Change in open interest: This shows the change in open interest from the previous session. If the number is positive, new contracts were added. A negative number indicates that a contract has been closed.
- Last traded price: This is the price at which the last trade occurred for a particular contract.
- Volume: Volume is the total number of contracts bought or sold for that particular strike price and expiration date on that trading day. It helps investors understand the interest in a particular contract.
- Implied volatility (IV): Implied volatility is an estimate of a stock’s potential to make substantial gains or losses in the future. It helps investors understand the potential risk of a trade. Higher values of implied volatility indicate higher anticipated future volatility in the market.
Understanding open interest, volume, and implied volatility in the Bank Nifty Option Chain
The three most defining columns in the NSE Option Chain are open interest, volume, and implied volatility. Open interest is the total number of contracts yet to be closed. Volume displays the total number of contracts bought and sold during trading hours. Implied volatility, on the other hand, shows the market’s expectations of volatility for a particular stock in the options trading marketplace.
The general rule is that high open interest represents a liquid market. This means there are enough buyers and sellers to ensure quick and easy trades. A decrease in open interest means fewer active buyers and sellers, indicating a decline in contract interest. In contrast, an increase in trading volume results in more liquidity, which translates to more efficient trading.
Implied volatility is an essential risk indicator. Generally, higher implied volatility means that the market expects more drastic changes in the stock’s price. It also indicates that options for that stock could be more expensive as the potential for profit or loss is significantly higher.