Options Symbology Changes Ahead

For the Options investors out there -
You may have heard already, or you may have noticed that your broker has implemented some new changes on their website recently. If you have ever trade options before you will know that finding and remembering the right symbol to track can be a bit difficult. 

For stock trades on the New York Stock Exchange, stocks are limited to three letter symbols. Some companies have been around for a long time and only have one letter -T = AT&T. Some are easy to deduce. AMD = Advanced MicroDevices. The NASDAQ exchange allows up to four letters for their listings.

The corresponding options, however, have always been cryptic at best. TradeKing.com recently sent me a link to help explain the changes.

An example of the old symbology is as follows:

XYZ AB (XYZ represents the underlying security, 'A' represents the expiration date, 'B' represents the strike price)

For those of you that remember, XYZ really could have been the symbol that represented security 'A' even if security 'A' had a much different stock symbol. The option and stock symbol did not have to be a like at all. This meant that you had to be very careful when placing option orders to make sure you were buying/selling what you really wanted.

The new identification of an option security will be based on 4 main components including: the underlying symbol, expiration date, strike price and option type (call or put). In most cases, the following option format will be used:

XYZ Apr 17 2010 35.50 Call

Now, with the proposed changes, the XYZ option symbol will really represent the stock symbol.

For more information on this topic -
Visit 888options.com page on The Options Symbology Initiative.

Have you trade options before? Are you looking forward to the new changes? Let us know in the comments.

Full Disclosure - At the time of this publication, the author did not have any positions in the stocks mentioned above. Yes, I do own a copy of TradeKing's The Options Playbook. I think it is a wonderful guide to explaining all the different types of options trades.