Options Trading: Reading the Chain

Posted On June 15, 2018 2:13 pm

The option chain not only gives basic information such as price and volume, but also analysis tool.  And for those that know how to read the data correctly the chain can reveal insights into how traders are behaving and help predict future price moves.

Gavin at OptionTradingIQ shows you How to Read the Option Chain what secrets it might hold to make you a better option trader.

Most traders reading this will have an online brokerage account with free, real-time quotes.

In this post, I’ll walk you through how to find and read options quotes from various free sources and also walk you through my setup within Interactive Brokers.

Some traders who are just starting their journey may not have an online account with options capability, so for those traders I’ll also show you a couple of sources for where to find free option quotes.

Usually these are delayed by 15-20 minutes so you wouldn’t want to trade using these quotes, but it can be a good place for beginners to get a feel for option trading and learn how to read the price quotes.

Let’s start by looking at Active Brokers. Before we get started, one very important point with Interactive Brokers – make sure you are using the Classic TWS view and not Mosaic.

Mosaic is awful and incredibly hard to use.

Within the Classic view, you can set up various tabs based on the stocks you want to trade or various sectors etc. You can see below that I have a few different tabs set up.

In this example we’ll look at AAPL stock, so on our new tab we type in the ticker “AAPL” into the box shown by the red arrow. Then we select “Options” from the menu.

This brings up the following box containing lots of information.

The first thing we want to do is select the expiration period that we are going to trade.

There are four available to choose from – June 1st, 8th, 15th and 22nd. Well done if you guessed that the tabs in yellow represent weekly options and the tab in white represents the standard monthly contract.

We can also select the More button which will allow us to choose from expiration periods that are further out in time:

Let’s say we want to trade the July options, we select July and look at the table.

Unfortunately, with Interactive Brokers, they only show the near to the money options. If you want to see further out of the money options, you need to scroll up or down. Let’s use the at-the-money options and learn how to read the table.

 Related: Learn Everything You Need to Know About Financial Psychology Here.

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About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.

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