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Overview of Option Expiry
On NSE we have index options and stock options. Index options have both weekly expiry and monthly expiry. One can trade index options via nifty and bank nifty. On the other hand, stock options have only monthly expiry. The weekly option expiry day is Thursday of every week. If thursday is a trading holiday, the previous trading day shall be the expiry day. The monthly options expiry day is the last Thursday of every month. The final settlement price for an option contract shall be the closing price of the underlying stock
Options are classified as follows:
ITM (In the money): A call option is said to be ITM if the strike price is less than the current spot price of the underlying. A put option is said to be ITM if the strike price is more than the current spot price of the underlying.
ATM (At the money): A call option is said to be ATM if the strike price is equal to the current spot price of the underlying. A put option is said to be ATM if the strike price is equal to the current spot price of the underlying.
OTM (Out of the money): A call option is said to be OTM if the strike price is more than the current spot price of the underlying. A put option is said to be OTM if the strike price is less than the current spot price of the underlying.
Let’s take an example to understand more,
Let’s say that Nifty is currently trading around 18,400. Then the options with various strike price will be referred to as:
| Strikes | Call Option | Put Option |
| 18000 | ITM | OTM |
| 18100 | ITM | OTM |
| 18200 | ITM | OTM |
| 18300 | ITM | OTM |
| 18400 | ATM | ATM |
| 18500 | OTM | ITM |
| 18600 | OTM | ITM |
| 18700 | OTM | ITM |
| 18800 | OTM | ITM |
Open Interest and Option chain:
Interpretation of open interest to understand market trend:
Open interest analysis can provide a trader with the direction or trend and support and resistance. For eg Nifty is currently trading at 18600 and the max open interest in the call is at the 18800 strike-price so for traders the 18800 level is a resistance level. And the max open interest in the put option is at 18400 strike-price so that will act as support. Open interest changes daily so traders should keep a continuous watch on the OI build-up in both the call and put options. Option chain open interest in nifty and bank nifty is a good market indicator, traders can combine it with other technical analysis indicators.
Option chain analysis for current month expiry (29 Dec 2022).
The maximum open interest in the call option: 19000 call option
The maximum open interest in the put option: 18500 put option
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