option chain
Option Chain is the full menu of options contracts for a stock, showing every strike price and expiry date side by side so you can compare and choose.
In plain English
At Balogun market, the fabric seller does more than have one type of lace on display. She has them arranged by colour, by length, by price, all laid out on the table so you can compare before you pick.
An option chain works the same way for stocks. It is a table that lists every options contract available for a particular company, showing all the strike prices and all the expiry dates, so you can see the whole menu before choosing which one suits your pocket and your plan.
Say you are watching Dangote Cement shares and thinking about options trading on a platform that offers it. The option chain would show you contracts letting you buy at ₦450 expiring next month, another at ₦480 expiring in three months, and so on, each with its own price tag called a premium.
Options are not common on the Nigerian Exchange the way they are in London or New York, so many Nigerians who trade options do it through international brokers, perhaps buying options on a UK listed company like Tesco or a big American name. The option chain is the tool that lays out those choices clearly, usually with calls on one side and puts on the other, strike prices running down the middle.
Reading it well means checking the premium, the strike price, how much time is left before expiry, and how many people are actually trading that particular contract. A contract nobody trades is like asking for change for ₦1,000 in a shop that has no coins. You might be stuck holding it.
A trader pulls up the option chain for a company and sees a call option with a strike price of $50 expiring in 30 days, priced at $2 per share. Buying one contract, which usually covers 100 shares, costs $200, giving the right to buy the stock at $50 anytime before expiry.
Questions people ask
Can I trade options on Nigerian stocks?
Not really, since the Nigerian Exchange does not currently run an active options market for individual stocks. Most Nigerians who trade options do so through international brokers on foreign listed shares, indexes or currencies.
What is the difference between a call and a put on the chain?
A call gives the right to buy the stock at the strike price, while a put gives the right to sell at that price. The option chain usually lists calls on one side and puts on the other, with the same strike prices in the middle.
Why do some strike prices on the chain cost more than others?
It comes down to how likely that strike is to be profitable before expiry, plus how much time is left and how much the stock's price tends to swing. Strikes closer to the current share price, with more time left, usually cost more.
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