How and Why Interest Rates Affect Options

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How and Why Interest Rates Affect Options

An Option Chain Chart is a listing of Call and Put Options available for an underlying for a specific expiration period. The listing includes information on premium, volume, Open Interest etc.

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Let's first see how an Option Chain looks like and understand the various data available in it. NSE provides you with Option chain charts for all trading Options. Here's what you need to do find the desired Option Chain: Visit www.

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On entering your Options Name, you will be taken to a specific Option page. I entered 'Nifty 50' in the search box and I was taken to this page: On clicking the options chain, I was taken into this page.

By Shobhit Seth Updated Apr 20, Interest rate changes impact the overall economy, stock market, bond market, other financial markets, and can influence macroeconomic factors. Barring the exercise price, all other factors are unknown variables that can change until the time of an option's expiry.

This is what we were looking for- the Option Chart. The Chart is divided into Call and Put Options.

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On the left side, we have data for Call Options and Put Options on the right side. At the center of the chart, we have various strike prices.

The Basics of Option Prices

We also see a part of data on both sides are highlighted in the pinkish shade and the rest is in white. A Call Option is a contract that gives you the right but not the obligation to buy the underlying at a specified price and within the expiration date of the Option. Please remember the contract gives you the right but it is not mandatory for you to buy the underlying.

A Put Option, on the other hand, is a contract that gives you the right but not the obligation to sell the underlying at a specified price and within the expiration date of the Option.

Here again, the contract gives you the right but it is not mandatory for you to sell the underlying.

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Your Options trade will become profitable only when the price of an Option crosses this strike price. It is a data that signifies the interest of traders in a particular strike price of an Option. OI tells you about the number of contracts that are traded but not exercised or squared off.

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The higher the number, the more is the interest among traders for the particular strike price of an Option. And hence there is high liquidity for you to able to trade your Option when desired.

The number of contracts that are closed, exercised or squared off. A significant change in OI should be carefully monitored.

Volume: It is another indicator of traders interest in a particular strike price of an Option. It tells us about the total number of contracts of an Option for a particular strike price are traded in the market.

It is calculated on a daily basis.

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Volume can help you understand the current interest among traders. It tells us about what the market thinks on the price movement of the underlying.

Put Call Ratio

A higher IV means the potential for high swings in prices and low IV means no or fewer swings. IV doesn't tell you about the direction, whether upward or downward, movement of the prices.

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The positive changes, means rise in price, are indicated in green while negative changes, options rates less than 1 in price, are indicated in red. Bid Qty: It is the number of buy orders for a particular strike price.

This tells you about the current demand for the strike price of an Option. Bid Price: It is the price quoted in the last buy order.

So options rates less than 1 price higher than options rates less than 1 LTP may suggest that the demand for the Option is rising and vice versa.

How to Read Options Chain? - Explained with Example

Ask Price: It is the price quoted in the last sell order. Ask Qty: It is the number of open sell orders for a particular strike price.

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It tells you about the supply for the Option. Now let's understand why a part of the date is highlighted in a shade while the rest is in white. A put option is ITM if its strike price is greater than the current market price' of the underlying asset. A put option is OTM if the strike price is less than the current market price of the underlying asset.