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I am using IBM stock
as an example. IBM is an optionable stock and its Option Chain on
Wednesday January 7, 2009 at the closing bell will most likely look like
the following table:
On this particular
day, IBM stock was down $1.44 and closed at $87.79. The yellow portion
of the table represents ITM options. The green portion represents OTM
options. Notice that call options move in the same direction of the stock
and put options move in the opposite direction of the stock.
I will use January
80 Call Option IBMAP as an example to explain the table.
Symbol: Every option has its own symbol different from
stock symbol. The symbol for IBM January 80 Call Option is IBMAP.
Last: This is the closing price of the particular
option at the closing bell. On this table, IBM January 80 Call Option
closed at $8.06/share or $806/contract.
Change: Reflecting the change compared to the closing
price from the previous day.
Bid: The potential buyer is willing to pay
$8.00/share or $800/contract for IBM January 80 Call Option.
Ask: The potential seller will accept $8.10/share
or $810/contract for IBM January 80 Call Option.
Volume: This is how many contracts of IBM January 80
Call Option are traded on that day.
Open Interest: This number represents how many open contracts
for this Call Option. When the market resumes trading on the following
day, the Volume should start, in theory, with zero and the Open Interest
should start with 14276 = 14096 + 180. However, in reality we will likely
see the Open Interest less than 14276 due to a number of option contracts
assigned or exercised during that time frame. Also in reality, we will
always see some numbers in Volume due to continuous trading activities.
Strike Price: The set price that the buyer and seller agree
upon for this option. The BUYER has the RIGHT to buy IBM stock at
$80/share even IBM stock traded above $80/share. The SELLER has the
OBLIGATION to sell IBM stock at $80/share even IBM stock traded above
$80/share.
For the best
interest of option traders, smaller gap between ask & bid price and
higher volume are preferred. Those two indicators tell us the liquidity
of a stock.
Notice IBM stock has
a $5 strike price increment. Generally, strike price increment for low
priced stocks is $2.50, for middle priced stocks is $5.00 and for high
priced stocks is $10.00. This is only in GENERAL, not ALL stocks fall in
this classification. For heavily traded Exchange Traded Funds (ETFs) such
as QQQQ (The Qs), DIA (Diamond) and SPY (Spider), to name a few, the
strike price increment is $1.00 and the gap between ask & bid price
is down to the penny. This is an ideal scenario for option traders.
Dennis Phan 潘家墉
13 February 2009
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