Learn/Options Fundamentals/Lesson 5
Lesson 5 of 5

Reading an Options Chain

Reading an Options Chain

An options chain (also called an option chain or option matrix) is the table your broker displays listing all available option contracts for a given stock. Learning to read this table quickly is a practical skill you will use every time you place a wheel trade.

Layout of an Options Chain

A standard options chain is split into two sides: calls on the left and puts on the right, with strike prices running down the center column. Each row represents a different strike price. Columns display data such as bid, ask, last price, volume, open interest, implied volatility, and the Greeks (delta, theta, etc.).

  • Bid: The highest price a buyer is willing to pay. This is the price you receive when selling an option.
  • Ask: The lowest price a seller is willing to accept. This is the price you pay when buying an option.
  • Bid-Ask Spread: The difference between bid and ask. Tighter spreads mean better liquidity and less slippage.
  • Volume: Number of contracts traded today. Higher volume indicates an active contract.
  • Open Interest (OI): Total number of outstanding contracts. High OI means deep liquidity.
  • Implied Volatility (IV): The market's forecast of future price movement. Higher IV = higher premiums.
Always Use the Bid Price When Selling
When you sell an option, you receive the bid price (or somewhere between bid and mid). Never look at the 'last' price as your expected fill -- it could be stale. Always base your premium expectations on the current bid.

Key Columns for Wheel Traders

  1. Delta: Look for put delta between -0.20 and -0.35 for a good balance of premium and probability of profit.
  2. Bid price: This is your actual income. Ensure it meets your minimum premium target (e.g., 1% of capital at risk).
  3. Open Interest: Stick to strikes with OI above 100 for reliable fills and tight spreads.
  4. Implied Volatility: Compare current IV to historical IV. Selling when IV is elevated boosts your premium.
Avoid Illiquid Strikes
Wide bid-ask spreads (more than $0.10-$0.15 on lower-priced stocks, or more than 3-5% of the option price) indicate poor liquidity. You may have difficulty closing the position later, and slippage will eat into your profits. Stick to strikes with high open interest and tight spreads.
Selecting the Expiration Tab
Options chains are organized by expiration date. Most brokers show tabs or a dropdown to select the expiration cycle. For wheel trades, select the monthly or weekly expiration that falls in the 30-45 DTE range.
Key Takeaways
  • •The options chain lists all available contracts organized by strike price, with calls on the left and puts on the right.
  • •Focus on the bid price (not last or ask) when selling -- that is the price you will actually receive.
  • •High open interest and tight bid-ask spreads indicate liquid, tradeable strikes.
  • •Use delta (0.20-0.35 range for puts) as a quick way to pick your strike on the chain.
  • •Always check implied volatility -- selling when IV is elevated means collecting richer premiums.
Quick Check
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When you sell an option, which price on the chain determines what you receive?

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