Option Chain Analysis
Option chain analysis was the practice of examining the complete matrix of available call and put strikes for a given underlying and expiry — including open interest, volume, implied volatility, and price across all strikes — to infer market participants' expectations about direction, range, and risk, and to identify significant support and resistance levels embedded in options positioning.
An option chain displayed every listed strike for a specific underlying and expiry in a tabular format, with calls on one side, puts on the other, and the underlying's current price in the middle. Each row showed the strike price along with metrics for both the call and put at that strike: last traded price, bid-ask spread, change, volume, open interest, and implied volatility. On NSE's website and terminal platforms, the Nifty and Bank Nifty option chains were among the most actively monitored data sets by retail traders and professionals alike.
The most widely used indicator derived from option chain analysis was the pattern of open interest (OI) buildup across strikes. Strikes with unusually large call OI were interpreted as potential resistance levels — large numbers of calls sold at that strike implied that many writers had a vested interest in keeping the underlying below it at expiry. Conversely, strikes with heavy put OI accumulation were read as potential support levels. This concept was closely related to the max pain calculation, which identified the price at which total option value destroyed for all buyers was maximised.
Changes in OI — rather than absolute OI levels — were particularly informative. If put OI at a given strike increased sharply on a day when the underlying rallied, it suggested fresh put writing (bullish) rather than put buying (bearish). If call OI at a resistance strike collapsed, it suggested unwinding of that call wall, which might remove a barrier to further upside. Reading OI change alongside volume and price direction allowed practitioners to form a view on whether new positions were being built or old positions closed.
Implied volatility across the option chain revealed the volatility surface or skew — whether OTM puts commanded higher IV than OTM calls, and whether near-dated or far-dated options were more expensively priced. In Indian markets, the pronounced put skew on Nifty — OTM puts consistently priced at higher IV than OTM calls — was a persistent feature reflecting institutional hedging demand and the asymmetric fear of downside crashes relative to equivalent upside moves.
Option chain analysis had limitations that experienced practitioners acknowledged. Open interest reflected positioning but not consensus on direction; a large OI at a strike included both buyers and sellers. The interpretation of OI as support or resistance was probabilistic and frequently wrong, especially when unexpected macroeconomic news caused the market to gap through supposed OI-based levels. Nevertheless, as a supplementary tool alongside price action, volume, and fundamental context, option chain data provided a useful window into aggregate market positioning on NSE's derivatives segment.