Defining Option Symbols

Because an option contract symbol is a derivative financial instrument, the underlying asset is key. The symbol used for the underlying asset is the appropriate exchange's stock, index, or future symbol used for that asset (i.e., MSFT for Microsoft, SP for Standard & Poor's, etc.).

Option symbols are different from their underlying asset symbol. The option symbol is constructed to represent the underlying asset and information about the option contract itself. In most cases, the option symbol is built using the root symbol, the expiration month, the exercise price, and option type.

The underlying asset in options trading is defined as the financial instrument on which an option contract is based or derived. It is the stock, future, index, currency, or other financial instrument that one has the right to purchase or sell. Generally, the symbol used for the underlying asset is the symbol used by the exchange where the underlying asset is traded. For example, the underlying asset symbol for Microsoft is "MSFT". This is the symbol used by NASDAQ, the listed exchange where Microsoft common stock is traded.

An option contract is also a financial instrument, sometimes termed a derivative, because it is based on an underlying asset, and its value and price fluctuate as the price of the underlying asset rises or falls. The option contract value can also be affected by other market conditions such as volatility, days to contract expiration, interest rates, and dividends.

The root symbol is the symbol used to identify the option's financial instrument for a specific underlying asset that is traded on the various trading exchanges.

Current date to February 12, 2010

The root symbol often varies slightly from the underlying asset symbol. For example, the root symbol for Microsoft is "MSQ", whereas the underlying asset symbol is "MSFT".

February 12, 2010 to symbol consolidation

The root symbol often varies slightly from the underlying asset symbol. For example, the root symbol for Microsoft is "MSQ", whereas the underlying asset symbol is "MSFT".

Symbol consolidation (date varies based on underlying symbol)

The root symbol is the same as the underlying symbol. For example, the root symbol for Microsoft is "MSFT", which is the same as the underlying asset symbol.

The other two options trading terms found in the option contract definition are "specified price" which is the exercise price known as the strike price, and the "given date" which is the expiration date and determines the option contract series.

The strike price is the actual price at which the option holder may buy or sell the underlying asset as defined in the option contract. In the case of a call, it is the price at which the call holder can buy the underlying asset. In the case of a put, it is the price at which the put holder can sell the underlying asset. For example, stock options always trade in 100 share units. This means that if the strike price of a Microsoft call was $120.00, and the holder purchased 1 call, the call holder would have the right to buy 100 shares of Microsoft common stock at a cost of $120.00 per share for a total amount of $12,000.00.

The expiration month is the month that the option contract expires. The specific dates vary depending on the kind of option you are trading, (e.g., stock, futures, currency, index). The correct expiration dates are automatically applied when you add the underlying asset and its corresponding options.

An option is classified according to its type, class, and series. The type represents whether the option is a put or call. The class represents all option contracts of the same type, for the same underlying asset. The series represents all option contracts of the same class with the same expiration date and strike price. For example, MSFT August 110 calls are a series, while MSFT September 120 puts is another series.

Stock Option Symbol (Current date to February 12, 2010)

An option symbol for a Microsoft stock option might be shown as MSQ FA. Letters of the alphabet represent whether an option contract is a call option or a put option and the expiration month. A different letter represents the strike price. As shown below, MSQ identifies the root symbol for the underlying asset MSFT, the letter "F" signifies that this option is a call option with a June expiration month, and the letter "A" signifies the strike price of the option to be either $5, $105, $205, etc.

Stock Option Symbol (February 12, 2010 to symbol consolidation)

The option symbol for a Microsoft stock option might be shown as "VMF 110122C27.5". As shown below, "VMF" identifies the root symbol for the underlying asset MSFT, the numbers "110122" signifies the expiration date, the letter "C" signifies a call option, and the number "27.5" signifies the 27.5 strike price.

[Option Root]<space>[YYMMDD Expiration Date][C or P][Strike Price]

Example

The symbol for a MSFT January 2011 27.5 Call is "VMF 110122C27.5"

• VMF is the option root symbol for the underlying asset MSFT
• 110122 is the expiration date in YYMMDD format for January 22, 2011
• C represents a call option
• 27.5 is the strike price

Stock Option Symbol (symbol consolidation date varies based on underlying symbol)

The option symbol for a Microsoft stock option might be shown as "MSFT 110122C27.5". As shown below, "MSFT" identifies the root symbol for the underlying asset MSFT, the numbers "110122" signifies the expiration date, the letter "C" signifies a call option, and the number "27.5" signifies the 27.5 strike price.

[Option Root]<space>[YYMMDD Expiration Date][C or P][Strike Price]

Example

The symbol for a MSFT January 2011 27.5 Call is "MSFT 110122C27.5"

• MSFT is the option root symbol for the underlying asset MSFT
• 110122 is the expiration date in YYMMDD format for January 22, 2011
• C represents a call option
• 27.5 is the strike price