Option chain and Greeks
In this chapter: Reading the chain like a trader · Delta, gamma, theta, vega in everyday decisions
The option chain is the live snapshot of all available calls and puts on an underlying. Each strike shows OI (open interest), volume, IV (implied volatility), and price. Reading it: heavy OI at a strike acts as a magnet; max-pain theory says the underlying tends to expire near the strike that maximises losses for option buyers.
Delta: change in option price per unit move in underlying. ATM ~0.5; ITM higher (closer to 1); OTM lower (closer to 0). Used for position sizing — to hedge ₹1L of stock with delta-neutral options, sell 100 shares' worth of delta. Gamma: rate of change of delta. Highest near ATM; matters for short-dated options. Theta: time decay per day. Negative for buyers, positive for sellers. Accelerates near expiry. Vega: sensitivity to IV. Long options benefit from rising IV (uncertainty); short options benefit from falling IV (calm). Practical: use the chain to find liquid strikes (high OI/volume), then size with delta.
A practitioner insight: India's option market has structural quirks. NIFTY/BANKNIFTY weekly options are heavily traded retail; mid-cap stock options are less liquid. The implied volatility (IV) tends to overshoot realised volatility — option sellers (with proper risk management) have a structural edge. But naked short options carry tail risk that can wipe out years of gains in one event. Sophisticated traders sell options as part of defined-risk spreads (iron condors, bull/bear spreads), not naked. Understanding put-call parity (C − P = S − K × e^-rt) lets you spot mispricings between options.