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How to Read a Stock Options Chain (Quote)

May 6th, 2014

Hey its Sasha Evdakov founder of Rise2Learn and in this video I want to talk about Options and How you can Read an Option Chain.

It’s important you learn how to read an option chain if you’re trying to trade options and probably know already what the basic premise behind options are and what they are and what they do at but you need to know how to read the option chain.

It’s kind of like learning how to read the quotes behind trading stocks and the same thing goes with options. With options they’re a little more complicated. Let me show you exactly how to read an option chain and we’re using Think or Swim platform on Bank of America and I like this platform because lot of people tend to look at it or use it and it fits to pretty much any other platform because it has most things and you can apply it to your trading platform.

read-options-chain.0151

Here we typed in Bank of America and we have the underline this is the stock itself and we have $15.95 that it last traded, the net change was -39 cents, here is 15.92 and the ASK is 15.94 again the ask is what the sellers are asking for the stock, the buyers are bidding to purchase the stock so you always have that little spreader gap of negotiation.

We have the volume we have the open with the high and here our option chains and since options are derivatives day drive their price from the underline I'm then all these prices are based somewhat on the underlying price of the stop.

Here is all the option chains and we have at the calls on the left and the puts on the right and if we drop one of these down first you'll notice how it kind of looks like. You’ve probably seen this once or twice if you’re just getting into options you probably seen it you might not know what it's all about so that's why we're going into this basic video to explain to you exactly what an option chain is all about.

The calls is on the left the puts is on the right the calls is if you buy one of these you're looking for the stock to go up the puts is you're looking for the stock to head down that is if you purchase just one of them. Now we have our options, are based on prices for the month so you can see here I have the may we have the June we have tho July, the August and November and the parentheses here are how many days until expiration.

The expiration time is always the third Friday of the month with the exception of these irregular weeklies options. You can see here they expire five days away 12 days away, 26 33, 40 but the standard monthly ones are the 19, 54 82, 110, 28 and so on.

If you want to buy option with more time premium you can buy one in January 2015 and right now we're in April on 27th 2014 on a Sunday actually so if you want a lot of time you'll pay a little more you'll pay a dollar twenty six for this at the money sixteen dollars as at the money whereas if you only buy it a fifty four days its fifty two sons so you can see that the price is nearly double to get some additional time premium.

Now of course if you studied a little bit about options you know that they're based in a hundred shares of stock so every option that you buy is really 100 shares of stock so looking at this deeper now we're looking at the June 2014, 54 days out this is the calls and this is the puts.

If we're looking for the stock to go up we would buy a call we can do something that's now at the seventeen dollar range if we want and we can purchase this one and you can do so by right clicking and buying or check marking something you have to look at your broker platform and see how you do that but something to that effect is the way you do it.

They may also have a ticker symbol here that you type in and you buy it.

If you're looking for the stock to head lower then you could do like a fourteen dollar put and the same thing you right-click you buy it and you still buy the put because you're buying something that you expect to go down so that’s kind of the premise behind the option chain.

Now if you're looking for more time premium of course you’re going to go a little further out and these stocks they have are so many different time premiums, stocks that trade a little bit more frequently they will be something like an Apple.

Here I pulled up Apple you can see that here we have many more strike prices in many other irregular options like the meanies the weeklies and then the standard 82, 110 August options and so on.

If we still look at the 82 day away July options you can see here the bid-ask spread is 10s, 20s and 30s cent so little bit wider than Bank of America.

here we have our Theta which is how fast the option deteriorates per day that's how much money you're losing on your option but you can change this you can change it to you open interest and you can see how many people have open interest in that option.

You can see also and change it to volume how much was being traded that day and you'll notice that it changes also on put side here. So here's our puts notice that it also change it there as well.

With different companies you'll have many more strike prices you can see that here not a lot of volume is traded but for some people that have been in apple for years with the options let's just say they bought a two-year option contract they may have an option back here at the 495 and you can see here the same with the puts.

This is why here you can change the strike prices if you choose to do so and you can change it to twelve you can change it to you 16 if you want and so on.

That’s kind of how you read an option chain. Now there’s one last little thing I want to mention is here this is the implied volatility for that option contract and option contracts are priced based on the implied volatility, the theoretical value and how much time you're buying along with little bit of a formula that goes along with that so this is important to know and understand if you’re purchasing same I'm a calendar spread.

In this month you would want to sell a calendar or sell one option and buy protection later so you notice that here you're selling an expensive thing or an expensive contract and here you would be buying protection at a cheaper price.

That's what the implied volatility is telling you that more volatility is in this month so it's smarter to sell one here and buy protection here so here if you're looking to buy an option you're getting a better deal in this month in July since the implied volatility is lower.

Here if you bought an option you're paying a little more because the implied volatility is technically higher you can see that in Bank of America it's actually reversed here we have a lower implied volatility in the current month and a higher one in the future and those usually get mixed with these volatilities depending on earnings.

Here in Apple we have June 21 its higher in the current month and lower in the future months so it's something to pay attention so like in Priceline you'll notice that as well June versus July we have 35 versus a 33 and again that's for if you’re doing calendar spreads or you're watching to get a deeper discount on your option premium if you're purchasing something.

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You can also change this to implied volatility and you can compare it you can see here this was a 34 and this is a 32 so if you're selling an option this would be a smarter one to go if you want to buy it you can probably go to the 82 because the 82 days out July because you’re paying less in terms of implied volatility.

It's kind of like how a car is priced if it's priced based on mileage you’re getting a lower mileage car in this month that's kind of how you read a basic quote window so let me do a quick overview again you type in your option ticker symbol here.

The option contracts will pop out and you have the calls on the left you have the puts on the right, you have your strike prices down the center, the bid, the ask, the net change and the implied volatility but of course you can change some of these to another value if you want.

Then you can select your strike price based on the months available and you know choose your month choose your strike price and then you can right-click and buy it or sell it and if it's a different platform you can check market or you can type in a symbol here and purchase the option.

That's how you read an option chain it's not too difficult and you know it makes it worthwhile to learn what all these things are doing for your option if you're looking to trade options so that's kind of a very simple video for beginner if you're new and hope it was helpful.

Thanks again for watching and remember to do what you love, contribute to others, and most importantly live like abundantly.

Author: Sasha Evdakov

Sasha is the creator of the Tradersfly and Rise2Learn. He focuses on high-level education speaking at events, writing books, and publishing video courses on business development, internet marketing, finance, and personal growth.

I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

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