You know what a call and a put are. Then you open the options screen at a broker and find a grid of numbers with headings like OI and IV, repeated twice, side by side. That grid is an options chain, and it is one small table copied many times over. What Is a Derivative places options among the four main derivative contracts, and this is the screen where you look one up. Every company, price and symbol below is invented.
The Shape of the Screen
Expiration dates run across the top, as a row of tabs or a dropdown. Pick one and everything below it belongs to that single date. Strike prices run down the page, lowest at the top. Calls sit on one side of the strike column and puts on the other, calls usually on the left.
So each row is a matched pair. Find the row marked 50 and you have the $50 call and the $50 put that both expire on the date you picked at the top.
Say Northwind Robotics, an invented company, trades at $48 a share. Its $50 call for that expiration might show these numbers, all invented: bid 2.35, ask 2.45, last 2.40, volume 312, open interest 4,180, implied volatility 34 percent. Six columns, in the order most screens use, each answering a different question.
Most screens also shade the rows that are in the money, a term Calls and Puts defines in full. On the call side that is every strike below $48, so the top of the column. On the put side it is every strike above $48, so the bottom. The shading looks like a staircase with one step in it, and the step sits at the current stock price. Watch the stock move and the step moves with it.
Bid, Ask, and Last
Bid is the most anyone is offering to pay for that contract right now. Ask is the least anyone will sell it for right now. You buy at the ask and sell at the bid, the same two prices you meet when buying a share. How to Buy and Sell Stocks covers the limit order that lets you name your own price instead, and it works here too.
Last is the price of the most recent completed trade. It looks like the real price and often is not, because "most recent" can mean four days ago on a contract nobody trades. Bid and ask tell you about now. Last tells you about whenever somebody last agreed on a price.
Volume and Open Interest Count Different Things
Volume is the number of contracts of that exact strike, date and type traded so far today. It starts at zero every morning. The 312 above is today's activity and nothing else.
Open interest is the number of contracts still alive: opened and not yet closed, exercised or expired. It does not reset, which is why 4,180 can sit beside a volume of 312. Think of volume as today's ticket sales and open interest as the number of people currently in the building.
One trade can push the two in different directions. Buy a contract from someone opening a new position and open interest rises by one. Buy the same contract from someone closing a position they already held and open interest falls by one. Volume rises by one either way.
The timing differs too. The clearing house tallies open interest after the close, so the figure sitting on the screen all day is last night's count, while volume updates as trades happen.
What Implied Volatility Measures
Implied volatility, the IV column, is a percentage worked backwards out of the contract's own price. It is the yearly price swing the market is pricing in, in either direction. It says nothing about which way. A 34 percent reading means buyers and sellers have settled on a price that only makes sense if the stock can swing hard, which is another way of saying that contract is expensive.
Every Quote Is Per Share
Premiums are quoted per share, and a standard US equity option covers 100 shares. The contract shown at 2.40 costs $240 plus fees. Nothing on the screen prints 240. Do that multiplication yourself on every number in the price columns, including the gap between the bid and the ask.
A Wide Spread Costs More Than the Commission
Suppose a thinly traded Northwind contract shows a bid of 1.10 and an ask of 1.60, both invented. You pay 1.60 to get in. Sell it a second later and you get 1.10. That 50 cent gap is $50 per contract, gone, before the stock has moved at all.
Compare it with the trading fee, which at most brokers is a per contract charge under a dollar and at some brokers is nothing. The spread is the bigger cost by a wide margin, and it is the one that never shows up on a statement as a fee.
Spreads are widest where volume and open interest are thinnest. A strike almost nobody holds tends to have a wide gap between its bid and its ask. Those two count columns tell you how much the price columns beside them are worth.
How the Contract Symbol Is Built
Every listed option has a symbol, and it is four fields glued together with no spaces:
the underlying symbol, up to six characters
the expiration date, written YYMMDD
one letter, C for a call or P for a put
the strike price times 1,000, padded with zeros to eight digits
So NWND271217C00050000 is the $50 call on the invented Northwind Robotics, expiring December 17, 2027. The thousands step handles fractions, so a $52.50 strike is written 00052500. Take a symbol apart and you can check that the contract on an order ticket is the one you meant to look up.
