Option Chain Reading – Finding Edge in Market Sentiment

Reading the option chain is a powerful technique for intraday option traders, yet many overlook it or use it superficially. The option chain reflects real-time sentiment of market participants and provides critical clues about support-resistance zones, directional bias, and even potential reversals. Mastering this skill can turn you from a reactive trader into a strategic one. Let’s break it down: 1. Open Interest (OI): Rising OI with rising price in calls suggests strong call writing — a bearish sign. Conversely, rising OI with falling price in puts means put writers are confident — a bullish sentiment. A sudden spike in OI at a particular strike (e.g., 25000 CE) can act as a strong resistance, while the same on PE (e.g., 24800 PE) indicates support. 2. Change in OI: The change in OI during the day matters more than the absolute figure. A strike with the highest increase in call OI during a falling market hints at fresh call writing (bearish pressure). Monitoring this live gives insight into where participants are betting or hedging. 3. Volume Analysis: If volume rises significantly with price and OI at a particular strike, it implies active trading interest — this is your clue for momentum. A spike in CE volume with premium rising can hint at aggressive call buying — a bullish sign — especially if matched with bullish price action. 4. PCR (Put-Call Ratio): Intraday traders use PCR as a contrarian or sentiment indicator. A PCR > 1.3 indicates overconfidence on the bullish side and may trigger a pullback. A PCR < 0.6 shows bearish sentiment saturation — often followed by a bounce. Keep in mind that extreme values work better near support-resistance zones.