Learn/Options Fundamentals/Lesson 5
Lesson 5 of 5

Reading an Options Chain

Reading an Options Chain

The options chain is the table your broker shows you with all available contracts for a stock. It looks intimidating the first time. I remember staring at it for 20 minutes trying to figure out what I was looking at. But once you know which columns matter, it takes about 10 seconds to find your trade.

Layout of an Options Chain

Calls are on the left, puts are on the right, and strike prices run down the middle. Each row is a different strike. The columns show bid, ask, last price, volume, open interest, implied volatility, and the Greeks. You don't need all of them. Here are the ones that actually matter.

  • Bid: The highest price a buyer will pay right now. This is what YOU get when you sell. Always look at the bid, not the ask.
  • Ask: The lowest price a seller will accept. This is what you'd pay to buy an option or buy back one you sold.
  • Bid-Ask Spread: The gap between bid and ask. Tight spread (like $0.05) = liquid, easy to trade. Wide spread (like $0.50) = stay away.
  • Volume: Contracts traded today. More volume = more activity = better fills.
  • Open Interest (OI): Total outstanding contracts. OI above 100-500 means you'll get in and out easily.
  • Implied Volatility (IV): How much movement the market expects. Higher IV = fatter premiums. This is your friend as a seller.
Always Use the Bid Price When Selling
When you sell, you're getting the bid price (or slightly better if you set a limit order between bid and mid). Never look at the 'last' price -- that could be from hours ago. The bid is what someone will pay you RIGHT NOW. I always set my limit order at the mid-price and let it work for a few minutes before adjusting.

Key Columns for Wheel Traders

  1. Delta: Look for put delta between -0.20 and -0.35 for a good balance of premium and probability. This is your strike-picking shortcut.
  2. Bid price: This is your actual income. Make sure it hits your minimum target (1%+ of capital at risk). If a $50 put only pays $0.30, that's 0.6% -- probably not worth tying up $5,000.
  3. Open Interest: Stick to strikes with OI above 100. Below that, you'll fight wide spreads and bad fills.
  4. Implied Volatility: Compare current IV to the stock's normal range. If IV is elevated (IV Rank above 50%), premiums are fat. Good time to sell.
Avoid Illiquid Strikes
If the bid-ask spread is wider than $0.10-$0.15 on a cheap stock or more than 3-5% of the option price, walk away. Wide spreads mean you'll get a bad fill going in AND a bad fill getting out. I learned this the hard way on a small-cap with $0.40 spreads. Stick to liquid names.
Selecting the Expiration Tab
Options chains are organized by expiration. Your broker will show tabs or a dropdown to pick the date. For wheel trades, find the monthly or weekly expiration that lands in that 30-45 DTE sweet spot. I usually check 2-3 expiration dates before settling on the one with the best premium-to-delta ratio.
The short version
  • •The options chain lists all contracts by strike price -- calls on the left, puts on the right.
  • •Focus on the bid price (not last or ask) when selling. That's what you'll actually receive.
  • •High open interest and tight bid-ask spreads = liquid, tradeable strikes. Don't trade illiquid garbage.
  • •Use delta (0.20-0.35 range for puts) as a quick strike-picking shortcut.
  • •Check IV before every trade -- elevated IV means fatter premiums for you.
Quick Check
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When you sell an option, which price on the chain determines what you receive?

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