Not all stocks have options listed for trading. There are some criterias that the public company will need to meet before their stock options can be listed for trading. To find out whether options are available for trading, the simplest way is to enter the stock ticker symbol to retrieve the stock quote information and find out if there is a corresponding options chain available. The availability of an options chain will mean that there are options being traded for that stock.
The options chain shows the available call and put strike prices for a specific underlying security and expiration month. Depending on the online brokerage service that you use, the interface may be slightly different but in general, the layout and available information should be very similar.
Below is the options chain interface from OptionsXpress. The most important information is shown right at the top and they are usually the underlying security, along with its latest market price, and the expiration month. This is common sense as you don't want to purchase an option only to realise that its for the wrong underlier or the wrong expiration month!
Calls are usually listed on the left hand side while puts are typically displayed on the right hand side. In-the-money options are usually highlighted to differentiate them from out-of-the-money options. If you wish to trade at-the-money or near-the-money options, they are positioned on either side of the horizontal 'border' created by the highlighting.
Down the middle is the range of strike prices available for trading for the selected expiration month. The strike price intervals vary and depends on the price of the underlying. For lower priced stocks (usually $25 or less), intervals are at 2.5 points. Higher priced stocks have strike price intervals of 5 point (or 10 points for very expensive stocks priced at $200 or more).
Option symbols are unique to every option contract and they denote the type of option, the underlying asset and the expiration month, provided you have a good understanding of options symbology. However, they are seldom used nowadays since with modern computer technology, these information are often presented to the trader in a user friendly interface - the options chain! While you can enter the symbol directly when placing an order, it is advisable to select the desired options using the options chain interface to minimize human error.
The last done price reflects the latest transacted price for the specific option. As the most recent transaction may be hours or days ago, especially for thinly traded contracts, you should check the bid-ask price rather than the last done price to get a better picture of the current market value of the option you wish to trade.
The bid and ask shows the price at which buyers are willing to pay and sellers are looking to receive for the particular option. The bid-ask spread is the difference between the bid and the ask and the size of the spread depends on the liquidity of the option. As a general rule, the lower the open interest, the wider the bid-ask spread. Furthermore, near the money options usually have higher open interest and hence better liquidity and narrower bid-ask spreads.
Your new trading account is immediately funded with $5,000 of virtual money which you can use to test out your trading strategies using OptionHouse's virtual trading platform without risking hard-earned money.
Once you start trading for real, your first 100 trades will be commission-free! (Make sure you click thru the link below and quote the promo code '60FREE' during sign-up)Click here to open a trading account at OptionsHouse.com now!
Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results....[Read on...]
If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount....[Read on...]
If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPS® and why I consider them to be a great option for investing in the next Microsoft®.... [Read on...]
Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date....[Read on...]
As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative....[Read on...]
Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date....[Read on...]
To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin....[Read on...]
Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading.... [Read on...]
Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator.... [Read on...]
Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa.... [Read on...]
In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as "the greeks".... [Read on...]
Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow.... [Read on...]