If you're a veteran options trader, you'll find that a major change to the rules of the game takes effect today (Friday). Today was the deadline for quotation systems, order-entry platforms and other electronic programs around the globe to begin referring to option contracts by entirely new identifying symbols.
The old option symbols - simple four- or five-character letter codes that have been in use since the Chicago Board Options Exchange (CBOE) first started trading standardized listed options back in 1973 - are being replaced with new, more-definitive codes containing a combination of up to 22 letters and numbers.
The new symbols are designed to provide a complete description of each individual option - one that can be universally understood by everyone in the markets, and by the data-transmission computers and electronic quotation systems.
The idea for a new option quotation format was first put forth back in 2005 by securities-industry insiders whose companies were struggling to find ways to deal with the steadily growing number of optionable stocks, index options, short-dated "serial" options, long-term issues such as LEAPs, etc. - and with the expanding strike-price ranges for all of them.
With the guidance of the Options Clearing Corp. (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."
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 of making everything work.
The new OSI-based system officially goes into effect today, though the CBOE and several other exchanges and brokerage firms began providing option quotes in the new format in late January.
To give you an idea of how to interpret the new symbols, let's assume the stock of Wells Fargo & Co. (NYSE: WFC) is trading at $28.25 per share and you think the financial sector is likely to rally over the next few weeks. You decide you'd like to play for a short-term gain by purchasing a March Wells Fargo call option with a strike price of $30.00 per share.
Using the old system, your request for a quote would have involved just five characters - WFCCF - with the letters defined as follows:
WFC - 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 Wells Fargo call, you'll need to call up this symbol: WFC100320C30
At first glance, the new symbol seems far more complicated than the old one - WFC100320C30 versus just WFCCF!
In fairness, though, once you know what all 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, on 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.
Just so you'll know, however, here's what everything in the symbol "WFC100320C30" means.
Decoding the New Option Codes
WFC - The option root: A one- to six-letter symbol for the underlying security - in this case, Wells Fargo & Co.
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.
As you can see, it's really not that complicated once each of the elements is explained. And, as already noted, you'll rarely need to type in a full option symbol. After today, virtually every quote system and brokerage-house trading platform will have new tabs and trading tools that reflect the changes, so you should have no trouble continuing to use options in your favorite trading and investment strategies [For another hypothetical example - this one involving Verizon Communications Inc. (NYSE: VZ) - check out the graphic that follows.]
News and Related Story Links:
- Chicago Board Options Exchange:
Equity Option Specifications Option Trading Tools/Quote Platform
- The Options Clearing Corporation:
Options Symbology Initiative (pdf)
NEW OPTION SYMBOL STRUCTURE
(Number of characters per identifier in parentheses)
Option Expiration Expiration Day of Option Type Strike
Root Year Month Expiration Put or Call Price
(1-6) (2) (2) (2) (1) (1-9)
WFC 10 03 20 C 30
WFC - The option root: A one- to six-letter symbol for the underlying security - in this case, Wells Fargo & Co.
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.