02 May 2008

Option Chains & Symbology

We discussed earlier that options were standardized contracts with various striking prices and expiries available. This is where the options trader needs to make a choice as to which strike and expiry to use. The options available to be traded are viewed via what is known as an option chain, which is simply a list of options.

It is from the option chain that you will choose which option contracts you want to trade. Option chains are available on a number of financial sites, or from your options broker. Public sites may display delayed data so it is better to rely on quotes from your broker.

Below, courtesy Yahoo Finance is an example of an option chain for INTC options that expire in May 2008. Click to enlarge.

You will notice each Option has it’s own unique symbol (N.B. Yahoo adds the .x suffix and is not part of the official symbol). It is important to know this symbol if you are using a full service broker to avoid errors. You can just use the description of the option, but I think it’s better to use both the symbol and the description. That way the chance of a mistake is minimal.

There is a logic behind option symbols and generally the symbol contain letters representing the following: Root symbol + Month code + Strike price code. For a further explanation of option symbols for US options go to http://biz.yahoo.com/opt/symbol.html or the exchange where you will be trading.

Those using electronic platforms might rarely actually use the option symbol, but it is still useful knowledge for statement reconciliation etc. If you are familiar with option symbology, you will know at a glance whether an option is a put or call, the expiry month and strike price. There is other information on the option chain that you will recognize from stock quotes; lets have a look at an individual contract to show what the information is telling us.

  • Symbol - The symbol for that particular contract.
  • Last - The last traded price. Please note that the last traded price may have taken place some time ago, perhaps days in some cases and may not reflect the current tradable price.
  • Change - If there has been any trades today, this will be the difference between the last trade and the previous trade, but as before, the previous trade may have taken place some time ago.
  • Bid - The current highest price someone is willing to pay for that option.
  • Ask - The current lowest price someone is willing to sell the option for.
  • Volume - The number of contracts transacted today.

There is an additional column there titled “Open Interest”, which we will discuss in the next section.

Next - Buying, Selling & Open Interest

1 comment:

Options Broker said...

how many volume are usually consider as large volumes ?