How do you read an option chain in India?

Most Indian option chains are split down the middle. The centre column is the strike price ladder, running from low to high. Call data sits on the left, put data on the right. The row nearest the current price of the underlying — say the Nifty spot level — is the at-the-money strike. Strikes above it are out-of-the-money for calls and in-the-money for puts, and vice versa below it.

Each side repeats the same columns: last traded price (the premium), bid and ask, volume, open interest and the change in open interest for the session. Read across a single strike row to compare what calls and puts are doing at the same level.

Premium (LTP) is the price a contract last traded at, quoted per unit and multiplied by the lot size when you transact. Volume is how many contracts changed hands today — a measure of activity. Open interest is the number of contracts currently open and not yet closed or expired; it measures how much money is committed at that strike. Change in OI shows whether positions are being added or unwound during the session.

Implied volatility (IV) reflects how much movement the market is pricing into that option. Higher IV means a richer premium. None of these columns predict where price will go — they describe where participation and cost sit right now.

High open interest at a strike means a large number of contracts are committed there, which is why heavily traded strikes often act as reference levels in commentary. But open interest is descriptive, not predictive — a crowded strike is not a signal to trade it.

The bid-ask spread — the gap between the best buy and best sell price — matters more than beginners expect. Wide spreads on illiquid strikes mean you pay a hidden cost every time you enter and exit. Liquid strikes near at-the-money on Nifty and Bank Nifty tend to have the tightest spreads.

On NSE, index options such as Nifty and Bank Nifty carry the deepest liquidity, with weekly and monthly expiries. Stock options are thinner, and far out-of-the-money or far-dated strikes can be barely traded — the chain will show low volume and a yawning spread. Filter for the expiry you actually intend to trade before reading anything else.

Premiums decay as expiry approaches because the time value embedded in them shrinks. Close to a weekly expiry, an out-of-the-money option can lose value rapidly even if the underlying barely moves. The chain shows you the cost; it cannot show you the timing risk you are taking on by buying that cost.

The most frequent error is treating high open interest or volume as a directional signal — it is neither. Another is ignoring the spread and assuming the LTP is the price you will get. A third is reading a far out-of-the-money premium as cheap when it is cheap precisely because the probability of it paying off is low. SEBI's published data shows roughly 93% of individual F&O traders lost money in FY24, and much of that loss concentrates in low-probability weekly options bought because they looked inexpensive on the chain.