What is an Option Chain?
An option chain is a handy, interactive tool for investors looking to buy and sell options for a specific security, like a stock. Also called an option matrix, its purpose is to curate relevant information — from pricing details to premiums and expiration dates — and make trading options as seamless an experience as possible.
An option chain is a visual display of a range of information that comes in handy when an investor is looking to trade options. An option is a contract that gives the owner the right to buy (in the case of a call option) or sell (in the case of a put option) a security at a certain price, up until a specified expiration date. The world of options trading is full of industry-specific language: strike price, change, bid-quote, ask-quote, open interest, symbol, etc. An option chain seeks to ensure that — despite the jargon and an overwhelming collection of numbers fluctuating in real-time — the process of trading options remains smooth and accessible to suitable investors. The display connects all the information in the form of a chain, but you might hear the same thing referred to as an option matrix.
There are several different option chains available for investors interested in trading options. Electronic stock trading platforms like TD Ameritrade, and brokerage firms like Charles Schwab and Fidelity Investments, all have their own. Option chains can also be found on financial websites like Yahoo Finance and WSJ.com. Here’s how you can trade options on your smartphone through Robinhood, free of any commission (other fees may still apply to your brokerage account, check our Robinhood Financial Fee Schedule to learn more). Variety is the spice of life! Pick your favorite, based on your experience as a user interacting with the information display. All investments carry risk.
An option chain is like a carefully arranged cheeseboard...
You can scan through a variety of known and unknown cheeses, ultimately picking a combination that pairs best with the wine you’re drinking — the options trade that works best for you. As you gain experience combing through your options (pun intended), your pairing strategy evolves, and it may help you develop a personalized options trading strategy.
In some cases, yes. Depending on the platform, you may be able to make the trade on the option chain.
A good place to start is familiarizing yourself with the meanings of certain labels on columns you will see in an option chain:
You may not see this on your option chain, but having knowledge about the concepts of call and put options being ‘in, at, or out of the money’ is crucial when you’re analyzing information on an option chain and making a decision about a trade and the resulting deal. Learn more about what is meant by options being ‘in the money,’ ‘at the money,’ or ‘out of the money’ here.
When the terms of an options contract are under discussion between a buyer and a seller, we say those options are in the process of being ‘settled.’ Clearing houses, organizations that act as intermediaries between buyers and sellers, help this process along, culminating with the buying and selling of a security.
There are two types of settlement options for options: physical and cash.
Physical settlement is when the seller of the contract delivers the actual underlying asset, like stock, by a specific delivery date. This is the more common of the two methods used to settle an options trading deal.
A cash-settled option works the other way. Physical delivery of the underlying asset is not required. A payment is made in cash instead of settling through stocks, or any other assets. This is more common for index options.
Yes, you may use a traditional broker. But here’s the thing. Fighting your way through the complexity could make you a more experienced investor and help you make better investing decisions.
Yes, you betcha! Options trading entails significant risk (aka you can lose all your money very fast) and is not for everyone. Certain complex options strategies carry even additional risk. You can learn more about these risks by reviewing the handy dandy options disclosure document titled Characteristics and Risks of Standardized Options, available here or through https://www.theocc.com. It’s important to consider your investment objectives and risks carefully before trading options. Supporting documentation for any claims, if applicable, will be furnished upon request.
Sure! In 2017, Robinhood Financial introduced commission-free options trading. To place an options trade, tap the magnifying glass on the top right corner of your home page. Then, search the stock you’d like to trade options for. From there:
What are Current Assets?
Current assets are anything of value that a company can reasonably expect to turn into cash within one year and are used to determine the liquidity of a company.
What is Year to Date (YTD)?
Year-to-date (YTD) describes the passage of time between the first day of the year — either the calendar year or the fiscal year — and the current day.
What is a Thrift Savings Plan (TSP)?
A Thrift Savings Plan (TSP) is a retirement savings plan that offers federal employees several tax-deferred investment and savings options, similar to a 401(k) in the private sector.
What is a W-9 Form?
A W-9 is a tax form U.S. businesses use to collect information from independent contractors in order to accurately report payments to the Internal Revenue Service.
What is a Waiver?
A waiver is a voluntary legal provision that releases you or another party in a contract from following the terms of the agreement without penalty.