Advanced Option Chain: Analysis, Strategies, Indicators & Insights

An option chain is essentially a comprehensive listing of all option contracts for a particular underlying instrument - be it NIFTY, BANK NIFTY, or an individual stock like Reliance. The chain displays information about call and put options. It provides a snapshot of different strikes as well as other expiry dates, along with the important metrics. These metrics include the premium price, open interest, and implied volatility. 

For traders in India, the NSE option chain is the most commonly used resource. It serves as a quick guide to understand the market sentiment, liquidity, and the likely zones of support and resistance, making it a very crucial tool for decision-making.

What Makes an Option Chain “Advanced”?

A basic option chain presents only limited data, such as the strike levels, premium prices, and trade volume. While this provides surface-level insights, it might not be enough for designing advanced strategies. 

On the other hand, an advanced option chain offers a more detailed view, including: 

• Change in Open Interest: It reveals the creation and unwinding of positions across different strike prices.
• Implied volatility: The live IV for each strike is shown, which helps in gauging market expectations of volatility. 
• Put-Call Ratio (PCR): It is a sentiment indicator.
• Option Greeks: They help analyse risk/reward as well as the expected movements of the options.
• Historical trends in OI/IV: We can analyse changes (movements) in OI as well as IP.
• Visualisation tools: They include heat maps, OI graphs, and payoff diagrams as well.

These advanced features enable traders to move beyond just observing numbers and instead interpret the market psychology to create structured trading strategies. 

Components of an Advanced Option Chain

A robust option chain includes several layers of information. The most important components are:

• Strike Prices: The range of available strikes above and below the current spot price.

• Premium (LTP): The last traded price of the call and put options.

• Open Interest: The number of contracts that are still open. The higher OI indicates that many traders have open positions in this strike.

• Change in OI: It reveals whether new positions are being created (long buildup, short buildup) or existing ones are being exited (long unwinding and short covering).

• Implied Volatility: It reflects the market's forecast of the future volatility. 

• Option Greeks: It is that matrix that will measure how option prices respond to changes in market value. 

• Put-Call Ratio: It will measure sentiment by comparing total puts OI vs total calls OI.

How to Analyse an Advanced Option Chain

Interpreting an advanced Option chain requires a systematic approach. Some of the key techniques include:

Checking OI buildup: Call Strikes, where there is high OI, generally act as a resistance. On the other hand, the put strike, which has the highest OI, can indicate support. For example, if NIFTY's highest call OI is at 22,500 and the highest put OI is at 22,000, the expected range is 22,000 to 22,500.

Change in OI with price change: By analysing the price and open interest together, traders can interpret the market's behaviour through four key scenarios - 

• If the price rises along with the increase in OI, it will indicate a long buildup. It means that the traders are creating fresh long positions with the bullish settlement.
• If the price falls and OI rises, it signals a short buildup as more traders will build up expecting that there will be further downside.
• On the other hand, if the price rises but the OI decreases, it will reflect on the short covering. This will reflect in a way that traders who were previously short are closing their positions. So there may be a temporary upmove.
• If both the price and OI fall, then it will suggest long unwinding, which means that the existing long positions are being squared off, which leads to price weakness.

Together, these signals will lead traders to decode the market potential and the sentiment, which can help in trading wisely. Here is the summary:

Price Movement	Open Interest Movement	Interpretation	Meaning
Price goes up	Open interest goes up	Long Buildup	Fresh long positions are created; this indicates bullish sentiment.
Price goes down	Open interest goes up	Short Buildup	Fresh short positions are created; this indicates bearish sentiment.
Price goes up	Open interest goes down	Short Covering	Traders are closing short positions, which gives a temporary bullish signal.
Price goes down	Open interest goes down	Long Unwinding	Traders are closing long positions, which gives a temporary bearish signal.

Look at PCR: To calculate the PCR, divide the total put OI by the total call OI. Here is the summary of how to interpret the PCR:

Put-Call Ratio Level	Interpretation	Market Sentiment / Meaning
Very Low (below 0.7)	Calls are more	This can indicate an overbought market and a possible reversal on the upside
Around 1.0	Balanced (Neutral zone)	Calls and Puts are fairly matched; this indicates a normal, steady market sentiment.
Moderately High (1.0 – 1.3)	More Puts than Calls	Traders are hedging or turning cautious, which can indicate mild bearishness.
High (above 1.3)	Puts are more	This can indicate an oversold market and downside move.

Overlay Greeks: Advanced traders may use the delta neutral, theta positive, or volatility-focused strategies after studying Greeks.

Tools and Platforms Offering Advanced Chains

There are multiple platforms that provide advanced option chain data. Some of them are -

• NSE Website: This website is available free of charge. It is also reliable, but it has very limited analytics. 

• Broker platforms like Groww and 915 offer additional tools, including OI charts, IV analysis, and strategy builders.

• Bloomberg/Reuters: If you are a supertrader, you can subscribe to the Bloomberg terminal. These are high-end professional platforms that offer institutional-grade analytics.

Strategic Uses For Advanced Chain Option 

Advanced option chains are not just observation. They can be actively used in strategy building. Some of the key applications will include:

Identifying Support and Resistance

It is based on OI concentration. Usually, the Call Strike with the highest OI works as a very strong resistance, while the Put Strike with the highest OI works as a very strong support. Hence, OI can help in finding the range of the day. 

Exact Expiry Zone

On the other hand, max pain is used to find the exact level or zone where the index might expire. Max pain is usually the strike at which the index has a high probability of expiring on the expiry day. 

Volatility Trading
Traders can use IV spikes around the corporate results, budget announcements, or RBI policy updates to trade events. Since the advanced option chain has the IV data as well, many traders can use it by comparing implied and historical volatility, which can help them set up straddles and strangles.

Expiry Day Scalping

A very popular scalping strategy in Nifty is done by checking the intraday OI shift. Traders keep monitoring the OI changes throughout the day to come up with scalping strategies. 

Examples and Interpretation Techniques 

Example 1: Normal trading day using OI (Option Selling)

Here is a strategy in option selling that can be used after identifying support and resistance levels.

At 9:20, we identify the call and put option with the highest OI. For example, 24500 CE and 24000 PE.

The option writers sell 24500 CE and 24000 PE, creating a short strangle. Now, if the OI concentration does not change, then it means that the market is moving sideways, and the trader can get the benefit of theta decay.

However, if the movement is in a single direction, traders can check the change in OI to manage their positions.

For example, if the market moves up, traders can analyse whether the OI is dropping at 24500 CE and rising at 24700 CE. In such cases, traders can roll over their call position by exiting the 24500 CE and taking a fresh short sell position in the 24700 CE.

A similar change in OI is expected on the put side also. The put OI might shift from 24000 to 24300, in which case the traders can shift the put trades as well. If managed well, this can lead to good accuracy.

Example 2: Expiry Day Trading

Expiry day trading can also be done using an advanced option chain. To do this, many traders use max pain, and again, this is an option selling strategy. Usually, the max pain will give the level where NIFTY is expected to expire. So traders can continue to follow the max pain. This can be done using short straddles and short strangles. A similar adjustment is required, as discussed in the previous example.

Example 3: Reversal Trading

PCR gives great reversal strategies, especially for option buyers. Extreme conditions can give good reversal moves. So if the PCR is very low (0.6), then traders can expect an explosive upmove and can go for call buying strategies.

On the other hand, if the PCR is very high (1.4), then traders can expect an explosive downmove and can go for put buying strategies.

Benefits and Limitations

While an advanced option chain offers significant benefits, it also has some limitations. Here is the summary:

Benefits 

• An Option Chain helps to decode the real-time market sentiment. 
• It can provide many ideas for strategy creation.
• For volatility traders, the option chain gives a clear picture at a single glance. 
• They are helpful for both short-term traders and long-term traders.

Limitations 

• An option chain can be complex for beginners without proper knowledge. 
• An advanced option chain requires a good understanding of Option Greeks as well as volatility behaviour.
• Options are very volatile. Therefore, the option chain data might change rapidly intraday, which can lead to quick adjustments. If not done correctly, it can lead to potential misjudgments as well.
• Some of the advanced tools may require a paid subscription, such as Reuters and Bloomberg.

Conclusion 

An advanced option chain is much more when you compare it with the price listing-it is a powerful analytical tool. This is for understanding the market. By the combination of open interest, implied volatility, PCR, and the Greeks, traders can move from mere speculation to structured, probability-driven strategies.

For Indian traders, especially those who are dealing with NIFTY and Bank NIFTY, measuring advanced option chains can prove a great advantage. However, like in any kind of trading, the holy grail is always having strong risk and money management.