Since 2010, when the Options Clearing Corporation (OCC) launched the Options Symbology Initiative (OSI), it has been possible to explain any U.S. stock option just by reading the ticker symbol—no decoding obligatory.

On the Latest York Stock Exchange (NYSE) and the Nasdaq, the present OCC-mandated code to discover stock options (in order that they might be quoted and traded) is a standardized alpha-numeric format with defined fields for 4 vital pieces of data: 1) the foundation symbol (what the underlying stock is); 2) the expiration date (when the choice expires); 3) the decision/put (buy/sell) indicator (whether the choice is a call or a put); and 4) the strike price (what the pre-determined call/put price is).

Here is an outline of easy methods to read the updated ticker symbols for stock options—and what made the OCC resolve to overhaul the symbology.

The Rationale for Restructuring the Option Tickers

Prior to 2010, the old ticker symbols for stock options were notoriously confusing and illogical. For instance, the old system allowed root symbols that were often quite different from the ticker for the stock itself and represented the strike price by one letter (as a substitute of numbers).

Although the present OCC-mandated symbology for option tickers is as much as 21 alpha-numeric characters long—and the antiquated code it replaced was only five letters—the brand new coding has been applauded by each investors and traders as way more intuitive and easy.

Find out how to Read the Ticker for a Stock Option

In the next Nike example, even a novice investor knows at first glance that “NKE220624C00099000” is an choice to buy (call) Nike stock at a strike price of $99 by June 24, 2022—because those 4 vital details a couple of stock option are all the time represented right within the ticker symbol—all the time in the next format:

Root Symbol (six-character maximum): The primary field is similar to the ticker symbol for the choice’s underlying stock. For the Nike option, this field is NKE—identical to the stock. Although there is simply one stock ticker for Nike, there might be a whole lot of options on the stock—all of that are identified by the identical initial letters in the choice ticker.

Expiration Date (six digits): The second a part of an option ticker is three fields with the expiration date in year-month-day order: (yy)(mm)(dd). Within the Nike example, 220624 right after the stock ticker implies that the choice expires on June 24, 2022.

Call/Put Indicator (one character): There are two kinds of options—calls and puts—and the third section of the ticker is one letter—either C or P—to point whether the choice is a contract to call (buy) or to place (sell) a stock. Within the Nike example, the C after the expiration date indicates that the choice is a call.

Strike Price (eight digits): The fourth section of an option ticker is all the time eight digits to point the strike price—the set price at which the choice might be bought (for call options) or sold (for put options). (The strike price can be called the exercise price.) Within the Nike example above, the eight digits are 00099000—which implies that the strike price is $99. Reading the strike price in the choice ticker requires an easy calculation: divide the eight digits by 1,000 or simply move the decimal point three digits to the left. (For instance, if the choice ticker reads 00078500, the strike price is $78.50.)

Options vs. Stocks

Unlike a stock, which represents fractional ownership of an organization, an option is a contract that grants the owner the best (but not the duty) to purchase or sell a stock by a selected date at a selected price.

Options are Derivatives: Also, options are derivatives, i.e., financial instruments that derive their value from an underlying asset. For instance, a stock option derives its value from the underlying stock. Other kinds of options have different underlying assets, e.g., stock indexes, exchange-traded funds (ETFs), fixed income products, foreign exchange, and commodities.

CBOE, OCC, SEC, CFTC: Like stocks, options are traded electronically on exchanges. For instance, most U.S. options are executed on the Chicago Board of Options Exchange (CBOE)—the world’s largest marketplace for stock options—and undergo the Options Clearing Corporation (OCC), the world’s largest equity-derivatives clearing organization. As a central clearinghouse for option contracts, the OCC is a SIFMU (systemically vital financial market utility), which implies that the OCC operates under the jurisdiction of the U.S. Securities and Exchange Commission (SEC), the U.S. Commodity Futures Trading Commission (CFTC), and the Board of Governors of the Federal Reserve System.

Call Option vs. Put Option

A call is a contract to purchase a stock at a predetermined price, which implies that—if the strike price is lower than the present market price of the stock—call options are profitable (the holder can purchase for lower than the market price). However—if the strike price is higher than the present market price of the stock—put options are profitable (the holder can sell for greater than the market price).

Zero-Sum Game: In fact, because of this options trading is a zero-sum game—one trader’s gain is corresponding to one other trader’s loss, so the web change in wealth is zero.

Risk vs. Reward: One other vital point is that, with each call options and put options, the client never risks losing more cash than the initial premium they paid—regardless of how much the worth of the underlying stock fluctuates. If the choice holder can either buy or sell at a profit—as in certainly one of the 2 scenarios described above—the profit potential is critical.

History of Ticker Symbols for Stock Options

Launched in 2006 by the OCC and a consortium of industry players from brokerages, exchanges, and clearinghouses, the Option Symbology Initiative (OSI) was a multi-year effort to create higher ticker symbols for stock options by completely revising the information format. To know the rationale for such a large, industry-wide overhaul of stock option ticker symbols in 2010, here’s a temporary history lesson.

The old five-alpha symbols—often known as the OPRA (Options Price Reporting Authority) codes—were established within the Nineteen Seventies and Eighties, when the choices industry was significantly smaller and fewer complex. (OPRA is a registered securities information processor that aggregates and disseminates data feeds of price quotations for options contracts to financial firms, brokers, and traders within the U.S.)

From 1973 (when options trading officially launched) to 2010 (when the OCC mandated the present 21-character naming convention), options trading grew from an easy market with similar contracts into a posh market with diverse products and global reach. As the choices market grew at a record pace, the exchanges began to develop sophisticated recent options that the five-alpha codes simply couldn’t capture.

To compound that deficiency with confusion—as soon because the exchanges introduced four-character and five-character stock tickers—the choices market began inventing their very own tickers to represent underlying stocks. This meant that, not only was the foundation symbol on the choice ticker often different from the ticker for the underlying stock, but there may be several versions of the foundation symbol on option tickers. When mergers, stock splits, and other corporate events happened, the issue got even worse.

Impact of the Option Symbology Initiative (OSI)

To bring the naming convention on top of things within the booming options market, the OCC’s Option Symbology Initiative (OSI) replaced the inadequate, confusing five-character OPRA codes with a uniform 21-character protocol to discover all listed option contracts transmitted between the exchanges, the clearinghouses, and all other constituents.

Probably the most significant improvements introduced by the 21-character OSI identifiers are uniformity, clarity, and logic: the ticker symbols for stock options at the moment are all the time six data elements with specified field sizes in a specified order. (There are six data elements in the choices ticker—but only 4 pieces of data—since the expiration date has three fields: 12 months, month, and day.)

In 2010, the exhaustive overhaul of stock option ticker symbols was in comparison with Y2K—a coding problem with computerized systems that was expected to cause havoc because the 12 months modified from 1999 to 2000. Nonetheless, although the choices naming conversion captured few headlines, it was a case of “no news is sweet news.”

The truth is, the uniform, logical OSI identifiers not only expedited order execution/settlement and compliance reporting but additionally reduced front-end and back-end processing errors. Perhaps most importantly, the brand new ticker symbols were credited with supporting the expansion of the industry by making options trading far easier to execute and way more accessible to average investors.