To be a profitable options trader, understanding the options chain has proven to be an important factor. In this article, we will demystify options chains but first, let’s briefly highlight options as a contract.
What are options? Options are contracts, usually a derivative that gives a buyer the choice to sell or buy a financial instrument at a specified amount and a specified period. Here, the buyer has control over buying or selling, that is, they are not under any obligation to buy or sell the financial instrument before reaching the expiration date.
Since time immemorial, options have been associated with extremely high risk. A lot of investors see it as a volatile and risky venture that only professionals can handle, forgetting the fact that options are useful for “small” investors as well. That aside, our main focus is the options chain and the top benefits associated with it but first, let’s demystify the concept of the options chain.
What is Bitcoin Option Chain?
The Bitcoin option Chain is the list containing all Bitcoin options contracts including put options, call options, expiry date, open interest, and a strike price of a financial instrument or asset. The purpose of the Bitcoin option chain is to make market analysis easy and fast. It is also used to bring all needed information of a financial instrument into one main board for easy access through websites like NASDAQ. Market analysis of acquired information of major components like strike prices, bid quotes, and ask quotes are worked on for future estimation of a specific asset price movement.
Key Terms in Bitcoin Option Chain
For a better understanding of the Bitcoin option chain, we will be highlighting key terms.
- Contract name
This is the identity associated with a contract. One feature of this is the uniqueness of the main board.
- Open Interest
This term sums up the available number of unexpired positions of an options contract.
This sums up the available number of traded options contracts in the market at a specified period. This term works as a liquidity signal that is, good liquidity is identified through increased volume.
- Strike price
This term signifies the price at which a buyer agrees to buy or sell an asset at a specified date.
- Bid/Ask Price
The bid price represents the best purchase price raised about an options contract while the ask price is the best selling price raised about an options contract.
Benefits of Options Chain Investments
Now that you are equipped with enough information about the Bitcoin option chain, let’s discuss some of its benefits that including:
- Liquidity and Depth Evaluation
One of the most acceptable benefits of options chain investment is that it helps traders and investors to properly run estimation analysis on the availability of liquidity of an options contract. Apart from that, options chains also allow you to estimate the depth of an options contract at any given agreed price. Depth estimation involves having the full understanding of the available liquidity. What this does is that you tend you have a clearer view of the market.
- Serves as Movement Monitor
For better and effective analysis, you need to be abreast of the movement in price. One thing an options chain does well is giving you easy access to the movement of the price of an options contract. When you are close to price movement, you tend to catch the short sharp moves in price which is made possible by the options chain. Having a clear view of the movement helps you better analyse the market.
- Easy Construction of Strategy
For a profitable trade journey in options, a strategy is needed. Options Chain gives you that extra help needed in developing a working strategy at the various agreed prices. Without a strategy, your decision will be largely based on assumptions which will consequently put your portfolio at risk. Having a strategy helps in the decision-making phase of your trade planning.
- Gives Updates on Major Statistic For Better Insight
With an options chain, one benefit you get is easy and quick access to major statistics about an options contract. This can lead to entering analysis that could generate better insight for better decision-making about future price movement.
Every options trader must understand the concept of the options chain. It has become an important aspect of options trading in recent times. With the options chain, you can mark important levels during your stock market analysis for a better watch. Also, it is needed to mark decisive stock support/resistance levels and decisive index support/resistance levels. With special features like the open interest and Volume, you can mark out the biases of market makers.
Invariably, understanding an options chain gives every trader and investor the ability to identify the best options to trade at the right strike price.