Options chain basics: calls, puts, implied volatility and open interest
An options chain lists every call and put for a stock by strike and expiration. Learn to read bid, ask, volume, open interest, implied volatility and earnings IV crush.
Key takeaways
- An options chain is a table of all available call and put contracts on a stock, organized by expiration date and strike price, with quotes, volume, open interest and implied volatility for each.
- A standard US equity option contract covers 100 shares, so a premium quoted at $2.50 costs $250 per contract before fees.
- Volume counts contracts traded today, while open interest counts contracts still open at the end of the previous trading day, as reported by the Options Clearing Corporation.
- Implied volatility is the market's expectation of future price movement backed out of option prices, and it typically rises before earnings and falls sharply afterward, a pattern known as IV crush.
- The price of the at-the-money straddle for the first expiration after an event gives a rough estimate of the move the options market expects.
An options chain is the full list of option contracts available on a stock, laid out by expiration date and strike price, with calls on one side and puts on the other. For each contract it shows the current bid and ask, last price, trading volume, open interest and usually implied volatility and the "greeks." Reading a chain tells you how the options market is pricing a stock's potential moves, which is useful context even if you never trade an option.
What is an option?
An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying stock at a set price (the strike price) on or before a set date (the expiration date). The seller (writer) of the option takes on the obligation if the buyer exercises.
- Call option: the right to buy 100 shares at the strike price. Calls generally gain value when the stock rises.
- Put option: the right to sell 100 shares at the strike price. Puts generally gain value when the stock falls.
- Premium: the price paid for the option, quoted per share. Multiply by 100 for the cost per contract.
Most US-listed equity options are American-style, meaning they can be exercised any time before expiration. Many index options are European-style and cash-settled. All listed US options clear through the Options Clearing Corporation (OCC). Before trading options, brokers must provide the disclosure document "Characteristics and Risks of Standardized Options," and options can lose their entire value. The SEC's investor education site investor.gov has introductory material on options risk.
How to read an options chain
A typical chain for one expiration looks like this, with calls on the left, strikes in the middle and puts on the right:
| Call bid | Call ask | Call volume | Call OI | Call IV | Strike | Put bid | Put ask | Put volume | Put OI | Put IV |
|---|---|---|---|---|---|---|---|---|---|---|
| 6.10 | 6.30 | 120 | 2,400 | 41% | 45 | 1.05 | 1.15 | 310 | 5,100 | 44% |
| 2.85 | 2.95 | 1,850 | 9,800 | 39% | 50 | 2.75 | 2.85 | 1,640 | 8,700 | 40% |
| 0.95 | 1.05 | 960 | 6,300 | 40% | 55 | 5.90 | 6.10 | 85 | 1,900 | 42% |
Column by column
- Strike: the price at which the option can be exercised.
- Bid and ask: the highest price buyers are offering and the lowest price sellers are asking. The spread between them is a cost of trading; wide spreads signal thin liquidity.
- Last: the price of the most recent trade, which may be stale for illiquid contracts.
- Volume: the number of contracts traded so far today. It resets every trading day.
- Open interest (OI): the number of contracts outstanding (opened and not yet closed, exercised or expired) as of the end of the prior trading day. The OCC updates it once per day, so it does not change intraday.
- Implied volatility (IV): the annualized volatility implied by the option's price. Higher IV means more expensive options relative to the stock price.
- Greeks: sensitivity measures such as delta and theta, explained below.
In the money, at the money, out of the money
| Term | Call | Put |
|---|---|---|
| In the money (ITM) | Strike below stock price | Strike above stock price |
| At the money (ATM) | Strike at or near stock price | Strike at or near stock price |
| Out of the money (OTM) | Strike above stock price | Strike below stock price |
An option's premium is made of intrinsic value (how far it is in the money) plus extrinsic value (time value and volatility value). An OTM option has only extrinsic value, which decays to zero at expiration if the option stays OTM.
Expirations
Standard monthly options expire on the third Friday of the month. Many actively traded stocks also have weekly expirations, and some have quarterly and long-dated options (LEAPS) with expirations more than a year out. If an exchange holiday falls on a Friday expiration, the expiration usually moves to the preceding business day.
Volume vs open interest
Volume and open interest together say more than either alone:
- High volume, rising open interest the next day: new positions are being opened.
- High volume, flat or falling open interest: existing positions are being closed or rolled.
- Unusually high volume compared with open interest at a strike: often called unusual options activity. It shows that someone traded heavily, but not whether they bought or sold, or whether it was a hedge.
Because OI updates overnight, you see today's new positioning only the next morning.
What is implied volatility?
Implied volatility is the volatility input that, when plugged into an option pricing model, produces the option's current market price. It is quoted as an annualized percentage. As a rough rule, a stock with IV of 32% is expected by the options market to move about 2% per trading day on average (32% divided by the square root of 252, about 15.9, is about 2%), with the actual move being larger or smaller.
Implied volatility differs from historical (realized) volatility, which measures how much the stock actually moved in the past. Comparing the two shows whether options are pricing more or less movement than the stock has recently delivered.
IV is not uniform across a chain. The pattern of IV across strikes is called the skew; for many stocks, OTM puts trade at higher IV than OTM calls, reflecting demand for downside protection. The pattern across expirations is the term structure.
Earnings and IV crush
Before a scheduled event such as an earnings report or a PDUFA date, implied volatility for options expiring just after the event usually rises, because the market expects a larger-than-normal move. Once the news is out, the uncertainty is resolved and IV typically drops sharply, often the next morning. This is called IV crush.
The practical effect: an option buyer can be right about the direction of the move and still lose money if the move is smaller than the options were pricing, because the drop in IV reduces the option's extrinsic value. The earnings season calendar guide explains when these events happen.
Estimating the expected move
A common shortcut for the move the market is pricing for an event: add the prices of the ATM call and ATM put (the straddle) for the first expiration after the event. If a $50 stock's ATM straddle costs $4.00, the options market is implying a move of roughly 8% in either direction by that expiration.
The greeks in one line each
| Greek | Measures | Example |
|---|---|---|
| Delta | Change in option price for a $1 move in the stock | A 0.50 delta call gains about $0.50 if the stock rises $1 |
| Gamma | Change in delta for a $1 move in the stock | Highest for ATM options near expiration |
| Theta | Time decay per day | A theta of -0.05 loses about $0.05 a day, all else equal |
| Vega | Change in option price for a 1 point change in IV | A vega of 0.10 gains about $0.10 if IV rises 1 point |
| Rho | Sensitivity to interest rates | Usually minor for short-dated equity options |
Delta is also commonly used as a rough estimate of the probability that an option expires in the money, though it is not a precise probability.
Worked example: Acme Corp (ticker ACME) into earnings
Hypothetical Acme Corp trades at $50 and reports earnings after the close on Thursday. The options expiring the next day (Friday) show:
| Metric | Before earnings (Thursday close) | After earnings (Friday open) |
|---|---|---|
| Stock price | $50.00 | $52.00 |
| $50 call price | $2.20 | $2.10 |
| $50 put price | $2.00 | $0.05 |
| Straddle price | $4.20 (implied move about 8.4%) | n/a |
| ATM implied volatility | 120% | 35% |
The stock rose 4%, less than the roughly 8.4% implied move. The $50 call is now $2.00 in the money, but it lost value overall because its extrinsic value collapsed with IV. The put lost nearly all its value. Someone who sold the straddle at $4.20 would be ahead, because the actual move was smaller than implied. This illustrates the mechanics of IV crush, not a strategy recommendation.
How to use options data on Quantisnow
- Options chains with IV and greeks are available per company at the pattern /options/AAPL.
- Combine the earnings calendar with a chain to see how IV builds before a report date.
- The FDA news feed and analyst ratings feed show the catalysts that often coincide with unusual options activity.
- Company pages at the pattern /company/AAPL tie the chain back to the latest news and filings.
FAQ
How many shares does one options contract control?
A standard US equity option contract covers 100 shares of the underlying stock. An option quoted at $1.50 therefore costs $150 per contract, plus any commissions and fees.
What is the difference between volume and open interest?
Volume is the number of contracts traded during the current day and resets daily. Open interest is the number of contracts still outstanding as of the end of the prior trading day, updated once per day by the Options Clearing Corporation.
What is IV crush?
IV crush is the sharp drop in implied volatility that typically follows a scheduled event such as an earnings report. Because the uncertainty is resolved, option prices lose extrinsic value, which can cause losses for option buyers even when the stock moves in their direction.
How do you calculate the expected move from an options chain?
A common approximation adds the prices of the at-the-money call and put for the first expiration after the event. The straddle price divided by the stock price gives the implied percentage move in either direction.
When do monthly stock options expire?
Standard monthly US equity options expire on the third Friday of the expiration month. If that Friday is an exchange holiday, expiration generally moves to the preceding business day.