Far from being some flash-in-the-pan investment strategy, listed options have only gotten more popular during the past five decades that they’ve been in existence (they turned 50 years old in 2023). Since then, options trading information has become more important than ever.
As options trading volume broke new records every year, the original ticker system that was put in place needed to grow to fit demand. This resulted in options chains (sometimes called options tickers) that are notoriously challenging to decode. Here’s how to read and understand them.
The Evolution of Options Chains
If you’ve been trading for a long time, you might remember the old way options tickers were listed. Usually, they were short symbols of three to five characters. That all changed in 2010 with the release of the Options Symbology Initiative (OSI).
With this new naming convention, you see a combination of (usually) 21 letters and numbers. Tickers with more characters may seem confusing, but the new naming convention makes a lot more sense than the old way.
In the past, an option ticker contained a root symbol, either the stock ticker or some variation thereof. The next character represented the expiration month, and the final character represented the strike price.
The final letter is where things got really tricky. For example, the letter N could mean that the option strike was $70, $170, $270 or $370.
And what if there was a stock split or the stock price changed so dramatically that the strike prices were no longer valid? Remember when Citigroup (NYSE:C) traded for less than $5 a share back in the early 2010s and not its current $60 price?
Before the new naming convention took effect, a Citigroup May 70 Call would have had a ticker of CEN. The E represents a May call option. But you had to be careful if you told your broker to buy CEN for you, as it’s also the ticker for Contact Energy in New Zealand. The Options Clearing Corporation (OCC) developed and released the OSI to clarify the process and reduce mix-ups like this one.
Reading Options Chains
Suppose that you wanted to buy a Citigroup May 5 Call with a $70 call option. The ticker, shown below, looks kind of scary at first, but you’ll soon see why it makes a lot of sense:
C 240522C00070000
Now, the good news is that your broker understands what this means. But it wouldn’t hurt to know what you’re looking at so that you pick the right option, regardless of the ticker.
This ticker has fewer than the 21 characters we mentioned previously. Note the spaces between the stock symbol (C) and the remainder of the ticker.
This allows plenty of room for the whole stock ticker, which is great for the Nintendos (OTCMKTS:NTDOY) of the world that would not have to be truncated because option tickers are no longer limited to five characters. Now, it’s time to unravel the mystery of the numbers.
240522C00070000 — the 24 is the expiration year (2024)
240522C00070000 — the 05 is the expiration month (May)
240522C00070000 — the 22 is the expiration day
240522C00070000 — the C is for “call” (it would be “P” for put)
240522C00070000 — these final digits represent the strike price. To calculate a strike price in dollars, you divide the digits following “C” by 1,000. Because 00070000/1000 = $70, the strike price here is $70.
In other words, the naming convention for options chains goes like this:
- The stock in question
- The expiration date in the format YYMMDD
- The option type (call or put)
- The strike price
- The strike price in cents
The good news is that you don’t have to memorize this naming convention. Your broker is well-versed in how to place your option trades. However, if you can read options chains, you can more easily manage them and know that what you see on your brokerage statement is exactly what you picked.
Furthermore, you can quickly track the daily prices on your option by going to popular finance websites like MarketWatch, Google Finance, Yahoo Finance and others. Go to the page for your stock at these sites, and you will find a button for the “option chain” that lists the months, strike prices, bids, offers and last sales. The more practice you have reading options chains, the easier it gets.
On the date of publication, Sarah Edwards did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
