How to Read an Option Chain: Delta, Theta & IV
Master option chain columns to choose better strikes and expirations with confidence.
Key Option Chain Columns
Basic Data:
- Bid/Ask: What buyers/sellers are willing to pay
Tighter spreads = better liquidity
- Volume: Contracts traded today
Higher volume = easier to get fills
- Open Interest: Total open contracts
Shows long-term interest
The Greeks:
- Delta: Price sensitivity + probability
0.30 delta ≈ 30% chance ITM
- Theta: Daily time decay
Benefits sellers, hurts buyers
- Vega & IV: Volatility sensitivity
Higher IV = pricier premiums
Practical Strike Selection
Delta-Based Guidelines:
Income Strategies
Delta 0.20-0.35
Covered calls, cash-secured puts
Directional Trades
Delta 0.35-0.60
Moderate conviction plays
High Conviction
Delta 0.60+
Strong directional bets
FAQ
What's gamma and why does it matter?
Gamma measures how fast delta changes. It's highest near expiration for ATM options—affects how quickly your position's sensitivity changes.
What is IV Rank?
IV Rank shows current implied volatility relative to its 52-week range. High IV rank (>70) favors premium selling strategies.
Volume vs Open Interest—which matters more?
Both matter. Volume shows today's activity, OI shows sustained interest. Look for strikes with both high volume and OI for best liquidity.