Trading stock options is not the same as trading stocks. Stock options are derivatives because they are contracts derived from an underlying asset, the stock. You are basically attempting to predict that a stock will reach a specified price on or before a certain date.
Because stock options are derivatives based on specific dates and prices, a symbol system was developed in 2010 to include all the information investors need to identify an option. Of course, they traded options before 2010, but the old system was a series of letters that made up a sort of code you had to decipher. The new system, though long, is easy to read if you know how.
The symbol for a stock option has 21 characters, but reading options trading symbols is simply a matter of knowing what each set of letters and numbers represents. That is what you’ll learn here.
How to Read Option Symbols?
An option symbol contains all of the information about the option. It has 21 letters and numbers, which seems complicated. But it is easy once you know their meaning and put them together.
The options symbol contains first the standard trade symbol for the product or company, then the date the option expires, followed by the type of option or indicator, and finally, the strike price.
Defining Option Symbols
Here are the basic elements that make up an option symbol:
- Root symbol is the common ticker symbol you see in stock listings. It can be as few as one letter or as many as six characters if you include various classifications or designations of a stock. IBM, GM, and GE are typical ticker symbols for companies we all know.
- Expiration date is the day the option expires. Each option has an expiration date and a rule for settlement that allows the holder to exercise the option on or before that date. An expiration date in an options symbol reads like this: 231409 for Sept. 14, 2023.
- Option type – There are two types, call or put, represented in the option symbol as C or P. A call offers the option to buy the stock, while a put is the sell option. They use these terms because you have the option to “call the stock away” from the seller or “put” the stock up for sale.
- Strike price – The final eight numbers of the option symbol, the strike price is the set price at which the option can be bought (call) or sold (put). Why eight digits? The people who created the system wanted to provide for large numbers and fractions of cents. Another way of translating this part of the symbol is to divide it by 1,000. The numbers 00021500 translate to $21.50.
How to Read the Ticker for a Stock Option
Let’s break down a typical option symbol for trading. We’ll use Apple Corp. for no reason other than an example and form a symbol for an imaginary options contract.
Let’s take a look at this stock option symbol and break it down to see what each segment means and how you can use it to read any option tickers:
AAPL230422C00154500
The Underlying Stock Ticker
These opening characters of an option symbol are letters that are the stock ticker of the product. We want Apple Corp., so our symbol starts with AAPL.
The Expiration Date
After the stock ticker letters come the numbers of the expiration date. This is set up with the two-digit year first, then the month, then the day. So, we want April 22, 2023, as the expiration date for our option. The symbol will show 230422 as the date portion.
The Option Type
Then comes the simplest part of the symbol, the option type. You can either seek a Call (C) or Put (P). Some basic information on what these option types mean to you:
- A Call Option is a contract that gives the holder the right, but not the obligation, to buy an underlying asset at a predetermined price within a specified time frame.
- A Put Option gives the holder the option to sell a certain asset at a pre-agreed price, within a designated time frame. They are not obligated to sell, but have the right to do so if they choose.
We’re seeking a call option, so the C will appear in the symbol.
So far, we have a call option on Apple with an expiration date of April 22, 2023. Our symbol so far should look like this: AAPL230422C.
The Strike Price
Eight numbers at the end of the symbol represent the strike price at which the option can be exercised. We’re looking at a strike price of $154.50 for our Apple option, so the price appears as 00154500.
Altogether, the option symbol for our Apple call option at $154.50, which expires on April 22, 2023, looks like this:
AAPL230422C00154500
Example Options Tickers You Could See In The Stock Market
- A put option for Exelon at $35.40, expiring on June 15, 2024: EXC240615P00035400.
- A call on Pepsico at a strike price of $185.25 that expires Nov. 15, 2023: PEP231115C00185250.
- Bank of America put at $30.25, expiring on Sept. 5, 2024: BAC240905P00030250.
Key Takeaways
Knowing how to read stock options symbols helps you identify specific options and know your target. This will help guide you through the thousands of options that are available on the stock market at any given time.
Whether you are looking to invest in a Call or Put, getting those details right from the ticker will allow you to make faster and more accurate decisions.
Always be aware of the expiration date! Many beginners overlook this while only looking at the stock symbol and strike price – and come to the realization too late.