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how the gears turn
Pricing Options: Big Picture Stuff
The basics behind how options get their prices
Introducing the Option Chain
First off, it's important to note that not all products come with their own option markets. The ones that do will list them in an option chain. On the Tastyworks platform, the option chain is accessed by clicking on the "TRADE" tab on the left side of the viewport, then by clicking "TABLE" in the upper left corner as shown in the screenshot.
Navigate to the Trade tab, then type "SPY" in the symbol search located in the upper left corner of the top panel. SPY is the for an that tracks the at 1/10th the size. Once you hit enter, you'll see it's current and shown just to the right.
As you can see, a list of several blue rows appear with different indicated on the left. Light blue rows indicate the and dark blue rows indicate and cycles. In the center of each row you can see the number of days until expiration. On the right you can see the . Each row is expandable and shows a table of options when clicked.
Click to expand a light blue row with anywhere from 30-60 days left until expiration (shown in the center). When it opens you'll find a table full of numbers. Don't it's not nearly as complicated as it may appear. Notice the orange line in the middle of the screen? That line represents the current price of the asset. You'll notice it lines up with the current price in the center gray column. You can use this as an anchor to find your bearings within the chain.
Left, Right, Center
The values listed in the center gray column represent the option If you recall, options give their owner the right to exchange shares at a predetermined price which is indicated by the strike. Notice how the strikes increase in value as you move lower on the chain. This may seem counter-intuitive but it is the standard format used everywhere. Strikes are usually $1 apart in the most actively traded products but they can be as narrow as $0.50 or as wide as $10 and up.
On either side of the strike column you have your option metrics. are listed to the left and are listed to the right.
At the top of the table, bid and ask are labelled as the two inner-most columns on either side of the strikes. The outer columns are customizable with various metrics, but we won't need to address those until later.
