What Are Option Chains?

Options chains are one of our favourite data points for investing insights which happens to be freely available to anyone with an internet connection.

Access and participation to trading options was historically dominated by institutions and specialized dealers. Options, or derivatives trading, was a manual over-the-counter process requiring negotiation with actual people. This changed in 1973 with the launch of the first U.S. listed options market by Cboe. While institutional investors like brokers and market makers with trading floor access benefited from early digital tools and lower transaction costs, trading still remained a manually tedious process with phone calls and paperwork for retail traders. Only the advent of electronic devices and trading platforms allowed retail investors to gain widespread easy access to options markets. Today, retail participation is significant and continuously growing at record rates.

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So what exactly are options and why do their chains matter?

Let's say you like a company and think its stock will rise. With options you don't have to buy the stock itself. Instead, you buy a contract for a specified price called the premium, determined by factors related to that stock, which gives you the option to buy or sell that stock at a certain price by a certain date. Options trading is also known as derivatives trading because the options contract and its price are derived from factors related to the stock. Options trading doesn't always involve stocks; you can find derivatives on almost anything that people can speculate future price on.

Options chains show all the current contracts that are available for a particular security and provide useful data for each contract. They show which prices and which dates people are betting on, called the strike price and date. They tell you how many people are holding contracts for that strike price on a date, as well as how many people are actively trading that option on any given day. These are referred to as open interest and volume. Websites like CBOE or TMX Group provide options trading and share an abundance of useful data, including options chains on stocks and ETFs.

If you think a stock will be higher or lower in the future, instead of just buying and holding, watching and waiting to see how the price moves up and down along the way could take weeks, months, or even years until it's profitable. While there's nothing wrong with that, it could affect our initial reason or strategy for making the initial investment and result in emotions entering the equation, sometimes leading to costly mistakes. Options also give you the opportunity to speculate in both directions with calls or puts—or even betting on one direction in different ways based on your risk. Another benefit is you can control the maximum amount of money you could lose just by paying for a premium to own an options contract. At the same time, options let you find ways to give yourself extra leverage to increase profits when your ideas play out, more than you would buying at the perfect moment.

Options also let you speculate on different moves along the way to your expected target price. For example, if you want to bet big on a stock going up, you can buy that call contract for a year out, let's say. But if you're also aware of short-term risks associated with that investment and that there could be a dip within the year you expect the stock to rise, you can also purchase options that capture the short-term downside movements in the stock while maintaining your long position. Instead of trying to time the bottom and buy the dip, this multidimensional investing approach allows people to profit on multiple trades on the same security by capturing any moves based on all your knowledge around the stock.

The beautiful thing about options chains is you don't have to necessarily understand how to trade them to gain an edge. Especially if options and derivatives are still a fresh concept for you, understanding certain options flow implications and reading options chains is all you need to add to assemble a fortified, proven method of research for your strategies.

The main categories of options chains to start analyzing, aside from date and strike price, would be Volume and Open Interest.

Let's get technical with some examples on how to use volume and open interest. Seeing a high call volume is bullish; people are speculating on a move above the current stock price. On the other hand, seeing high put volume would be bearish, indicating an increase in people speculating on a downward move in the price. We can't always rely on that though because investments are dynamic and always changing. We always have to use critical thinking and assess every other piece of information about that stock to ask ourselves if that volume makes sense. For example, combine options chains with technical analysis to find support and resistance, and check if options data lines up with the patterns we see on the chart.

Open interest shows the amount of contracts people are currently holding and waiting for them to hit. High open interest on calls would mean that most people are currently holding options contracts for the stock price rising above that strike price by the date those options are set to expire.

It's useful to combine open interest with volume because open interest naturally changes less often than volume. Seeing higher volume together with high open interest can usually indicate increased bullish sentiment if people are adding calls. Conversely, it could indicate a negative change in sentiment if the open interest declines by a similar amount to volume by the next day. Same goes for puts.

Take a look at this options chain for McDonald's (MCD). If the stock price is currently at $295, what can we assume just based on the options data provided here in this image?

The high call volume indicates new bullish sentiment. The put interest indicates people are not convinced about a move higher by July 11, 2025.

To summarize shortly, volume is more fluid and dynamic and also indicates two options: people opening new contracts or exiting current ones. Open interest is typically more stable and also provides us with a single clear idea of sentiment. Once you understand the basics and incorporate them into your research, managing risk and emotions will become a lot easier. It will also feel like you're gaining an edge the more you use this data alongside other parts of your research to spot patterns and connect the dots.