Have you ever considered investing in options but got confused just from looking at the ticker symbol? At first glance they can seem a little confusing. A bunch of letters followed by a bunch of numbers just thrown together is enough to scare most investors away. Did you know that option ticker symbols actually serve a purpose and provide important information for traders? All those strange combination’s of letters and numbers really do mean something to investors. If you can break down a ticker symbol into smaller parts, it is actually very easy to understand what it represents.
Just like stocks, every option contract has a unique ticker symbol. While the underlying stock of an option has only one ticker symbol (e.g., INTC is the ticker for Intel), there can be hundreds for the option contracts tied to that same stock. A stock’s ticker is often very recognizable to an investor whereas an option symbol can seem a little confusing at first.
In order to fully understand what a option ticker symbol represents, it is important to recognize the different parts that make it up. There are four different pieces of information included in every option symbol. These items include the underlying stock symbol, expiration date, type of option, and the strike price.
Option ticker symbols are made up of four different pieces of information. The first part of the symbol consists of the ticker symbol of the underlying stock. For example, any contract that begins with ‘INTC‘ represents a contract for the company Intel. All contracts for Microsoft begin with ‘MSFT‘ and Wal-Mart’s begins with ‘WMT‘. This helps investors immediately identify which stock the option is for.
The expiration date of an option contract is the day in which the contract is no longer valid and becomes worthless. For U.S. options, most expiration dates fall on the third Friday of the expiration month. Given that this is such a valuable piece of information about a contract, it is included in the ticker symbol of each contract for investors to quickly identify.
The expiration date of the contract comes after the stock symbol and is represented in the following format – Expiration Year (YY) + Expiration Month (MM) + Expiration Day (DD). For example, a contract that begins like INTC110416… would represent an option for Intel with an expiration date of April 16th, 2011.
There are two types of options: puts and calls. A put option is a contract that gives the buyer the right, but not the obligation, to sell a specific amount of stock from the underlying security at a specific price (strike price) before a set date (expiration date). Investing in put options is generally viewed as a bearish behavior in the market.
The other type of option is a call, which is the opposite of a put. A call option is a contract that gives the buyer the right, but not the obligation, to buy the underlying stock at a specific price (strike price) before a set date (expiration date). Investing in calls is normally viewed as a bullish behavior in the market.
Since the type of contract is critical to option investors, it is also included in the ticker symbol. Just after the expiration date, the next character of the ticker symbol represents the option type. A ‘C‘ is used to represent a call option and a ‘P‘ for a put option. For example, a ticker that begins with INTC110416C… would represent a call and INTC110416P… would represent a put.
The final piece of information provided to investors in the option ticker symbol is the strike price. Just like the expiration date, the strike price provides important information to investors. The strike price, also called the exercise price, this is the price at which stocks can be bought (call options) or sold (put options) prior to the expiration date.
The remaining values after the option type represent the strike price in a option ticker symbol. For example, the strike price portion of the following option ticker symbol INTC110416C00007500 would be 00007500. This value includes three decimal places, so the strike price would actually be $7.50 in this case. An easy way to calculate this value is to divide the strike price portion of the ticker by 1,000.
Now that we know the different attributes that make up the ticker symbol of an option contract, let’s take a look at an example. The following ticker symbol is an actual contract for a U.S. option – PG111022C00060000.
Here is what we can find out about this option –
We now know this contract represents a call option for Procter & Gamble with a strike price of $60 set to expire on October 22, 2011.
Compared to stocks, trading options can seem very confusing to an investor. While the potential profits from this type of investment strategy can be outstanding, the losses can be substantial as well, especially if the investor does not understand how options work. One of the very first things to learn about options is their ticker symbol and what it represents.
Do you trade options? What other advice can you give for new traders looking to educate themselves on this type of investment strategy?