Option Chain Volume Analysis | Volume in Option Chain NSE | Importance of Volume Analysis in Option Chain | Open Free Account Online and Start Trading Today !
Explore the importance of analyzing the Volume in option chain for NSE options traders. Learn how to interpret the data using option chain volume analysis tool to identify current trends and liquidity and enhance your overall trading experience
Option Chain Volume Analysis : Why It Is Important for the Traders
There are various indicators in the options market to gauge the market sentiment. One such important indicator is option chain volume analysis. It provides crucial data such as overall market sentiment, potential price movements and strike prices. Understanding and analyzing the NSE option chain volume can help option trader to get better insights and they can make better decisions. In this article, we shall discuss the importance of Volume in option chain, how to analyze it and why it is important for the Indian traders trading on NSE.
What is Volume in Option Chain ?
The volume factor in an option chain shows the total number of option contracts traded, either call or put, on a given trading day. Each contract has its Volume to show. Through option chain volume analysis tool, traders can identify potential price movements, interest in the market for a specific strike price, or the support and resistance levels of that contract.
While analyzing volume in option chain analysis tool on NSE, many other metrics are also considered, such as open interest, implied volatility, etc., to get a holistic market view.
How to Analyze Volume in Option Chain ?
In order to analyze the Volume in option chain, traders compare the trading volume with the historical data, open interest and other metrics. The high Volume with relation to open interest in option chain can indicate the surge in the demand, due to many internal and external factors. On the other hand, if Volume is low but the open interest is high. It indicates that the traders are holding their positions instead of selling or buying.
In case you are new to this option chain volume analysis and want to know it in simple steps, kindly check below :
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1) Check the relative Volume
Compare the current volume levels with the average Volume over a selected period and check for any unusual activity.
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2) Volume Spikes
Check for any sudden spikes in the Volume in option chain data, as they may indicate new information on market sentiment.
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3) Option chain volume analysis with the price movements to understand the market
Understanding if there is any change in the Volume due to the change in the underlying assets price can also give traders an idea about the market sentiment.
Why Does Trading Volume Matter to Options Traders ?
Option chain volume analysis is one of the best and most important indicators for options traders. It helps them identify the number of contracts being sold or bought and further shows the change in sentiment. During high volume, traders can easily enter and exit the market as the liquidity is also high. Analyzing the Volume in option chain becomes more important for NSE traders looking to capitalize on quick market movements.
Higher trading volume data also helps narrow the bid-ask spreads. When this analysis is combined with liquidity, traders can create a successful trading strategy.
Difference between Option Volume and Open Interest in Option Chain
Although both Volume in option chain and open interest give market insights, they measure different things. Option chain volume analysis shows the total trades in a single trading day. Open interest shows the total number of outstanding contracts held by the traders that have yet to settle/close.
High Volume and a rise in open interest can signal strength in the market and new positions. While high Volume and declining interest indicate that traders are losing interest and closing their positions.
Importance of Volume in Option Chain
Analyzing the Volume in the option table cannot be neglected. The higher the Volume is, the higher the speculation and easy to interpret the market. Higher Volume at some specific strikes can show greater movements around them.
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Above that, the NSE option chain volume analysis is used with other indicators to adjust or modify the strategies.
How Do You Interpret Volume in Option Chain ?
To interpret the Volume in option chain is easy; just remember some rules of thumb for the same, which are as below:
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High Volume, along with the low open interest, suggests new positions and positive, potentially profitable market sentiment.
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A high Volume with high open interest suggests a lack of interest in the market.
How to Read Volume with Option Chain
Reading the Volume in option chain is as simple as reading the open interest. Below is the stepwise procedure for option chain volume analysis from the options matrix.
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Check for the high Volume strikes to gauge the key price levels prevailing in the market.
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Compare the Volume with open interest and check the behavior or interest of the traders, whether it is rising or falling.
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As a next step, try to correlate any changes in the underlying asset price due to changes in the Volume.
Conclusion
In options trading, whether it is Volume in option chain analysis or open interest analysis, all metrics play a crucial role in identifying the overall market sentiment. By understanding the importance of volume analysis on NSE, traders can see potential price shifts, liquidity, and critical price levels. Understanding and implementing this option chain volume analysis in your trading life can significantly enhance your results.