Thursday, 13 December 2007

Option Ticker Symbol

Have you ever wonder how are those option ticker symbols being constructed? Is there a special way to name them? If you read my post yesterday, I used the Coca cola call option KOBM as an example to illustrate how the Black-Scholes model can be used to compute the call option price. Why do they named the Coca cola call option that expire in Feb 2008 with a strike price of US$65.00 as KOBM?

Simple as it seems, the option ticker symbol does tell us a lot of information if we know how to interpret it. Take a look at the three tables below.
I guess you may have guess how is the call option symbol being constructed after seeing these three tables. If you still do not have any clue, here is how the Coca cola call option that expire in Feb 2008 with a strike price of US$65.00 symbol is constructed. KO is the stock symbol for Coca cola company. From the Call/Put table, B represents a call option expiring in Feb. M represents the strike price of US$65.00 is our case here from Price Table 1. Interesting? Perhaps you can figure out what AQI means? If you say AQI is the Agilent Technologies put option that expire in May 2008 with a strike price of US$45.00, then BINGO! You got it right. Hope you have fun.

9 comments:

messels said...

hi, thanks for posting this! i was just starting to fret about how i was going to create a calculator for ROI on covered options without being able to consistently know what the ticker symbol is.

i can send you the link to the calculator when i'm finished if you'd like. hopefully i'll get the time to do this before next weekend.

either way, cheers!

Neaven said...

Hi Messels, no problem. It will be great if you can send me the link so I can share with my readers if you do not mind. Have a great day ahead.

Mike said...

Hi, I have a question. If we know GOPHF, how do we find the Strike Price? GOP is the Option ticker for Google. H, according to your chart is for Expire Month of August, and we're assuming that it's for 2008. But is F the value of 30, 130, 230, 330, 430,...?

This is the part that I'm stuck at. Since the strike price for an option never changes, how do we know if GOPHF was created years back when GOOGLE was worth 330 per stock or if it was created for this year at 430 or 530?

Regards,
Mike Lou

Neaven said...

Hi Mike, that is a very good question you have asked. In fact, what you have asked is one of the issues faced by the naming convention of option symbols today. There are several problems with such naming conventions

• Lack of uniformity for LEAP option convention (i.e. options with maturity greater than one year)
• Use of illogical identifiers for both options and underlies
• Difficulties encountered when rolling LEAP options to standard options as they age.
• Ambiguous naming, such as when options for both 105 strike and 205 strike exist on the same expiration for an underlying.

This issue will most probably be resolved when the new option symbol naming convention is in use in year 2009, which has quite a similar naming convention to how warrants are being named in Asia today.

To answer your question, we need to know how the strikes are assigned for currently. The selection of available strike prices for all equity options follows the orderly pattern set out in the Standard Specifications: 2-1/2 points (or 2.50) for stocks trading below $25, 5 points (or 5.00) for those trading from $25 to $200, and 10 points (or 10.00) for stocks trading above $200. As a result, strike prices can be abbreviated according to the price tables I have illustrated above (part of a larger table).

Using Intel Corporation as example here, the call option with a $25 strike price and an October expiration date might appear this concisely as .INQJE

• .INQ is the symbol for regular Intel Corporation options (LEAPS would be different)
• J signals that the option is a call and the expiration is in October
• E refers to the 25 strike price (“E” can mean any strike price ending in “25”, i.e. 125, 225, 325, etc., but because available strike are set to bracket the current stock price, it should mean 25 here.)

Normally, this should work. However, when we key in "INQ" in an on-line quote source, we discover a surprise: the code for some specific contracts are "NQ" instead of "INQ". That is sometimes called a "wrap" or "overflow" symbol, because the price of the stock has moved so dramatically, contracts were created over a short time span with strike prices that are now more than $100 apart or in this case, less than a $1 apart. Therefore, when there are more than one contract has a strike price ending in $…25 with the same expiration month. The strike price code table cannot distinguish between, say, the Oct $25 contracts and Oct $125 contracts, so to identify one from the other, a new option code was assigned for the other contract. Hence in the case here, we will notice that the option symbol for call option October 2008 with strike of 24 is .NQJB, very much different from how a typical call option is named.

This is an example of how real-life quotes can sometimes be confusing, and why verifying the exact symbols with the brokerage firm is so important.

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