In recent editions of Options 101, we analyzed how options are priced using the Black Scholes formula. In today's edition, we're going to learn how to crack the options code.
(Looking for something more advanced? Seasoned options speculators can check out a new sister column, Advanced Options.)
When buying or selling options, it's important to understand all of the components of the trade. With this in mind, we're going to examine the option codes on an equity that's been popular in the options pits recently: Wynn Resorts, Limited (WYNN). In afternoon trading today, WYNN's May 50 call has seen nearly 6,000 contracts change hands.
How does that translate into the option code? It will be a combination of the underlying stock, the expiration month, the strike price, and the type of option at hand. The underlying stock would be Wynn Resorts, the expiration month would be May, and the strike would be 50. In other words, the buyer of this option has the right to purchase 100 WYNN shares at $50 per share – no matter how high the stock rises – until options expiration on Friday, May 15.
On the other hand, WYNN's May 45 put has also been popular today, with almost 3,600 contracts changing hands. In this case, the underlying stock and expiration month are the same, but the type of option and strike price are different. Simply put, the purchaser of a WYNN May 45 put has the right to sell 100 WYNN shares at $45 each – no matter the stock's market price – until options expiration on Friday, May 15.
Moving on, just as each stock is defined by a specific ticker symbol, each option has its own unique symbol that is composed of several parts. The ticker symbol is merely the letters that an exchange uses to represent the underlying stock. For Nasdaq-listed stocks with more than three letters in the stock code, the option ticker symbol will be shortened to three letters. For example, Wynn's stock symbol is "WYNN," but the option ticker symbol is "UWY."
Meanwhile, each expiration month has a separate code for both calls and puts. Typically, the first half of the alphabet (A – L) represents calls (A = January, B = February, etc.), while the latter half (M - X) generally represents puts. On that same note, each strike price has a separate code, which is usually identical for both calls and puts.
When listing an option, the option ticker symbol is mentioned first, followed by the expiration month code, and then the striking price code. For example, the WYNN May 50 call would be listed as UWY EJ, while the WYNN May 45 put would be listed as UWY QI.
Utilizing the Schaeffer's Quotes & Tools page, we can find pricing and trading information regarding a stock's specific options, including:
To sign up today for a free subscription to "Bernie Schaeffer's SENTIMENT, smart options for today's investor," a new quarterly magazine devoted to the subject of options trading, click here. Sentiment's inaugural edition includes a cover story by Bernie -- "Are We There Yet?" -- that arms readers with some new tools for gauging a market bottom. Each issue of SENTIMENT is jam- packed with critical resources and information to help you trade in today's volatile market.
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The Options 101 column introduces readers to the basics of options trading by exploring rudimentary concepts and terminology, and dissecting the risks and rewards of various strategies. Though this series is designed for option rookies, we hope seasoned options speculators can learn something, too. read more...
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