How Do You Predict The Market By Option Chain

Many people do not prefer to invest their money in the financial market. The reason behind this is they characterize the financial market as highly volatile and risky. Although, it is a matter of choice, whether you want to take risks for earning or not.

Moving ahead with our Today's article is for those who have already taken the risk and are already involved in the financial system. Now, life is hard for them. Also, they constantly need to search for effective strategies, tips, and tricks to make informed decisions that will help them profit. To help them in the process, they have one amazing tool named option chain. By analyzing the option chain data, traders can predict the market in a better way. Therefore, in this article, we shall see an Option Chain Screener and how to use it to predict market movements.

Understanding the Option Chain

It is important for every trader to understand the option chain for its optimum utilization. The option chain is a table that showcases all available option contracts that are not yet settled for every underlying asset, whether a stock or Indices.

It presents a detailed view of all the call and put options with different strike prices and expiry dates. Based on how many contracts are not yet settled and which contracts have the highest demand, they can predict the future price movements of the underlying asset. 

Using the Option chain screeners

Option chain screeners are an excellent tool that helps in filtering the options among the pool of thousands. This screener provides customized choices to screen the data based on the volume, open interest, delta value, implied volatility of the stock, etc. With the help of such unique filtering criteria, traders can choose the best options contracts which align with their trading and financial goals. This type of focused approach to selecting the best options offers traders meaningful information and leads to profit.

One of the important parameters we can see in the option chain is open interest. Let's find out how analyzing this value will help traders.

Understand the analysis of Open interest in the option chain

The open interest value refers to the number of option contracts that are not yet settled; they are outstanding for any action. When there is a lower number of outstanding contracts, it reveals that the underlying stock is highly liquid. On the other hand, when there are more contracts outstanding, it shows less participation from the traders. When the open interest value is high for a specific strike price and expiry date, it suggests that traders are expecting the stock to cross that strike price within that duration. The low open interest value suggests a lack of interest in that stock.

Bank Nifty Option Chain Analysis

Let us consider the example of the Bank Nifty option chain analysis. The bank Nifty comprises all the banking stocks listed on the exchange board. Traders interested in this sector minutely monitor the Bank Nifty option chain to understand the overall market sentiment and to understand the overall trend and performance of the sector. Monitoring and analyzing them will help traders identify where to apply the support and resistance. Next, it helps in knowing the breakout points and, most importantly, helps the short-term traders identify the movements in the coming short term and make decisions accordingly. 

With the help of proper analysis of the Bank Nifty Options chain, traders can better determine the strike prices where there is significant open interest. These strike prices help them to decide potential support and resistance levels. Further, it helps determine the over-accumulation by institutional traders or financial firms. All the above details help traders understand the market as a whole, stay informed, and make better decisions related to their position. 

Conclusion

Option chain analysis, along with the option chain open interest analysis, can prove to be the best tool to predict the market. By using all such filters, traders can easily filter out the relevant stock and can accurately predict the further market movement of the underlying asset. The value of the open interest, if predicted effectively, can provide useful insights about the market sentiment and reflects the inclination of the traders. In the same way, by properly analyzing the bank Nifty option chain, traders will have a complete scenario of how the banking sector is performing. However, every trader is advised not to rely on this analysis only; conducting fundamental and technical analyses is also very important. Apart from them, they must also check the event calendar to safeguard themselves against any sudden hikes in the price due to any announcements or other events. 

When the underlying asset is analyzed from 360 degrees, and you are well aware of the consequences under different market scenarios, your strategy and trading decision will result in profit.

On a lighter note, predicting the market can itself be a challenging task, and there has been no foolproof method. It all depends on your logical thinking and how good you are at reading numbers. There is always some risk attached. Therefore conduct thorough research prior to making investment decisions.