Option Chain Analysis | Learn How to Read Option Chains

NIFTY OPTION CHAIN

1. Concept of “PERFORMANCE” depicted on CALL-PUT side Any “STRIKE PRICE” will show any of the following:

a. LONG BUILDUP

b. LONG LIQUIDATION

c. SHORT BUILDUP

d. SHORT COVERING

PERFORMANCE OPEN INTEREST PRICE CHANGE
LONG BUILDUP INCREASE INCREASE
LONG LIQUIDATION DECREASE DECREASE
SHORT BUILDUP INCREASE DECREASE
SHORT COVERING DECREASE INCREASE

2. Visualization of “PERFORMANCE” on CALL-PUT side.

Every set of performance on CALL-PUT side has its own story to say which is clarified in the following table.

PERFORMANCE CALL PUT
LONG BUILDUP POSITIVE NEGATIVE
LONG LIQUIDATION NEGATIVE POSITIVE
SHORT BUILDUP NEGATIVE POSITIVE
SHORT COVERING POSITIVE NEGATIVE

 a. “LONG BUILDUP” on CALLS depicts that market participants are ready for BULLISH action on the index or instrument whereas “LONG BUILDUP” on PUTS depicts that market participants are ready for BEARISH action on the index or instrument

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b. “LONG LIQUIDATION” on CALLS depicts that market participants are losing hope on BULLISH action of index or instrument and this may signify the start of BEARISH trend whereas “LONG LIQUIDATION” on PUTS depicts that market participants who were BEARISH on index or instrument are finding out loss of steam on BEAR side and this may be considered as the inception of BULLISH trend

c. “SHORT BUILDUP” on CALLS depicts that market participants are WRITING CALLS on a particular STRIKE PRICE and that should be the immediate RESISTANCE moving ahead whereas “SHORT BUILDUP” on PUTS depicts that market participants are WRITING PUTS on a particular STRIKE PRICE and that should be the immediate SUPPORT for the current scenario

d. “SHORT COVERING” on CALLS signify WRITERS leaving their position and consider it as “WEAKENING OF RESISTANCE” which is actually a good sign for the index or instrument whereas “SHORT COVERING” on PUTS signify WRITERS leaving their position and consider it as “WEAKENING OF SUPPORT” which is actually a bad sign for the index or instrument

3. Interpretation of PCR

 PCR basically stands for PUT CALL RATIO which has following implications

PCR > 1On a particular STRIKE there is HIGHER OPEN INTEREST of PUTS as compared to OPEN INTEREST of CALLSThis signifies that the particular STRIKE will stand as a SUPPORT for the current scenario
PCR < 1On a particular STRIKE there is LOWER OPEN INTEREST of PUTS as compared to OPEN INTEREST of CALLSThis signifies that the particular STRIKE will stand as a RESISTANCE for the current scenario

4. Some important points to be considered while using this NIFTY OPTION CHAIN excel sheet a. This excel sheet is designed in such a way that the data would be automatically fed and the sheet will get automatically refreshed every 5 minutes b. If the data is not getting refreshed then “GO TO ‘DATA’ TAB” – “CLICK ‘REFRESH’ BUTTON” c. The sheet is under testing mode and I have checked in the last trading session it was working but if it fails, kindly update me so that I can make the required modification d. All the formulas are ‘OPEN’ you can see and edit as per your own choice “NO COPY RIGHTS” e. Before using this sheet in a full fledged manner ensure that the apt data is fed to the sheet f. For removing the unnecessary STRIKES, from “PCR” column use filter and “UNSELECT” #DIV/0!