It seems that options quotes are expressed in many different forms, but in the interest of clarity, it makes sense for all industry folks and traders to agree on a few standards. This is the “usage” of options and how we express values.
A few notes:
1. Premium value. The value of an option is expressed in dollars and cents per share, but without dollar signs. So when we describe an option at 1.20 it means it is worth $1.20 per share, or the contract price of $120.
2. Underlying value. The underlying is always expressed in dollars and cents. But to distinguish this from the option value, it is always accompanied by a dollar sign and expressed on a per-share basis. So the current price of $53.25 tells us that this is the price per share of the underlying.
3. Expiration month or day. If there is only one expiration in a specific month, it is simply identified using a three-digit abbreviation and without periods. Thus a January expiration is described as Jan, not as January or Jan. If there are two or more expirations, the expiration date consists of the day and month. Here is a bit of inconsistency. A weekly expiration is the Friday of the week, but the monthly option is identified by the Saturday after the last trading day (third Friday). So if there are both a weekly and a monthly in January, they are expressed as a Jan 5 and a Jan 20 (5th is a Friday and 20th is a Saturday).
4. Underlying identification. The underlying security is identified by the trading symbol, usually excluding the exchange. Thus a Caterpillar option is described as CAT and not as NYSE:CAT or CAT:NYSE.
5. Opening and closing. The description of a trade should describe whether it is opening or closing and whether long or short. Opening a long position involves a “buy to open” and the close is a “sell to close.” Opening a short position is a “sell to open” and closing it is a “buy to close.” Avoid describing the sale of a short position as “buying it back.” You never owned it to begin with, so how can you buy it back? This is not a good description.
6. Call versus put. Normally, you identify the call or put by stating it within the listing cited. For example, you might talk about a CAT Feb 80 call or a CAT Feb 82.50 put. In a listing of several options, these are divided into columns or each listing is summarized with either ‘c’ or ‘p’ in place of spelling them out.
Are these rules really necessary? I have noticed a great inconsistency in usage, and these suggested rules may help to clarify what gets expressed when it comes to options.
Michael C. Thomsett
About this week’s Heavy Hitter: Michael C. Thomsett is a widely published options author with six options books in print. and has recently signed a contract with Palgrave Macmillan for a two-book deal, both books on options topics. Thomsett blogs at FT Press, Benzinga and Seeking Alpha. His website is www.MichaelThomsett.com www.ThomsettPublishing.com twitter@ThomsettPublish