Investing Strategies: How to Decode the New Options Trading Symbols

It sounds like it should have been a government project - "clarifying" something by changing it from just four or five letters to a lengthy combination of up to 22 letters and numbers. That is what's about to happen with the trading symbols for "put" and "call" options listed on U.S. options exchanges.

But the "government" had nothing to do with it.

The idea for a new option-quotation format was actually put forth back in 2005 by securities industry insiders whose companies were struggling to find ways to deal with the rapidly growing number of optionable stocks, index options, short-dated "serial" options, long-term issues such as LEAPs - and the expanding strike-price ranges for all of them.

With the guidance of the Options Clearing Corporation (OCC), a group was organized and tasked with creating what was subsequently dubbed the Options Symbology Initiative (OSI) - a system to "overhaul the symbology used in representing listed option contracts in data transmissions between market constituents."

In other words, the group wanted a uniform format for quoting option prices that could be universally understood by everyone in the markets, including the data-transmission computers and order-entry systems - a format to replace the simple letter codes in use since the Chicago Board Options Exchange (CBOE) first started trading in standardized listed options in 1973.

The group came up with a proposal that was submitted for public comment in May 2006 and approved for adoption by the OCC Board of Directors in December 2006. Since then, exchanges, brokerage firms and data services have been diligently working on the mechanics needed to make it all work.

The new OSI-based system officially goes into effect on Friday, Feb. 12, but the CBOE and several other exchanges began providing option quotes in the new format last Monday (Jan. 25).

To give you an idea of the impact this new format will have, let's assume that the stock of Verizon Communications Inc. (NYSE: VZ) is trading at $29.25 per share. You are interested in playing the stock for a short-term rally by purchasing a March Verizon call option with a strike price of $30.00 per share.

Under the old system, your request for a quote would have involved just four characters - VZCF - with the letters defined as follows:

  • VZ - The option root: A one- to three-character symbol representing the underlying stock (Nasdaq and OTC issues with four- or five-letter stock symbols had abbreviated option symbols).
  • C - The designation for the expiration month and the type of option - either call or put. In this case, "C" denoted a March call (whereas a March put would have been designated by the letter "O").
  • F - The strike price: The letter "F" indicated a strike price of $30.00 (or $130, $230, $330, etc., depending on the price of the underlying stock). A strike price of $35.00 would be "G." $40.00 would be "H" and so on up to "T," which would denote a strike price of $100.00. The letters "U" through "Z" were for fractional option strike prices.

Pretty simple once you got the hang of it - though it did require some interpretation for fast-moving stocks with lots of options and several fractional strike prices.
What about the new system? Well, to get a quote for the same March $30.00 Verizon call, you'll need to call up this symbol: VZ100320C30.

At first glance, the new certainly doesn't appear clearer than the old!
VZ100320C30 versus VZCF?

In fairness, though, once you know what all of the characters mean, it really does clarify the quote - if only because it literally tells you everything there is to know about a particular option.

Besides, with most of today's electronic quote systems and brokerage order platforms, you'll never have to actually type in the symbol for a given option. You'll only need to click on the "Option Chain" tab for the stock in which you're interested and it will provide quotes for all the options, allowing you to select the one you want.

However, so you'll know what everything in the symbol "VZ100320C30" means, it's also summarized in the accompanying info-graphic (see graphic below). But let's break down this symbol:

  • VZ - The option root: A one- to six-letter symbol for the underlying security - in this case, Verizon (VZ).
  • 10 - Two characters indicating the year in which the option expires - in this case, 2010.
  • 03 - Two characters representing the month in which the option expires - in this case, March.
  • 20 - Two characters giving the actual day on which the option expires - in this case, Saturday, March 20. (Remember, equity options don't actually expire until the Saturday after the last trading day, which is almost always the third Friday of the expiration month).
  • C - A single character indicating the type of option - in this case, a call. (If it were a put option, the symbol would include the letter "P," instead).
  • 30 - One to nine characters (including a decimal character, if needed) specifying the strike price - in this case, 30, or $30.00 per share.

See, once it's explained, it's really not that complicated, at all. And, as already noted, by Feb. 12, virtually every quotation system and trading platform will have revised its tabs and trading tools to reflect the changes. So you should have no trouble continuing to use options to enhance the gains on your favorite investment strategies from Money Morning.

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