Option Chain Reading (Practical)
The practical skill of interpreting NSE's published option chain table to understand where open interest is concentrated, how implied volatility varies across strikes, and what the data suggests about market participant positioning.
NSE published a real-time option chain table on its website for Nifty, Bank Nifty, and all F&O-eligible stocks. The table displayed calls on the left side and puts on the right side, with strike prices running down the centre column. For each strike and each side, the table showed open interest (OI), change in OI, volume, implied volatility (IV), last traded price (LTP), net change, bid price, and ask price.
Practitioners reading the chain focused primarily on OI concentration. The strike with the highest call OI was interpreted as a resistance reference — large call writers had concentrated there, creating an incentive for them to defend the strike price from being crossed, though this was a probabilistic framework rather than a guaranteed mechanism. Similarly, the strike with the highest put OI was viewed as a support reference.
Change in OI during the day was more dynamic than absolute OI. A sharp rise in call OI at a strike accompanied by a fall in premium was typically interpreted as fresh call writing, suggesting bearish short-term sentiment at that level. Rising put OI with falling premium indicated fresh put writing, a bullish signal at that strike. Rising OI with rising premium indicated fresh directional buying.
Implied volatility across the chain revealed the volatility skew. In Indian index options, the left skew (higher IV for lower-strike puts) was historically pronounced because institutional participants purchased downside puts for portfolio protection. Observing when this skew compressed or inverted gave context about whether the market was in a risk-on or risk-off regime.
The option chain also showed the put-call ratio (PCR) by OI and by volume at each strike and in aggregate. Practitioners cross-referenced PCR with price action to form a view about whether option writers were being tested. Practical chain reading combined all these data points rather than relying on any single metric in isolation.