When you begin trading options you’ll spend part of your research scanning for the right options to buy. When you find a list of options, then you’ll need to learn how to read the quotes to pick the right one.
Quotes on stocks are simple. They involve entering the ticker symbol of the stock into a quote service.
The service returns the latest price at the time of inquiry. Some services offer real-time quotes during market hours while others provide a delay, usually 15 minutes.
Options investors usually start their research with a stock price quote. When the price is displayed, the service will provide a link or tab for options quotes on the stock. Yahoo! Finance provides a link directly under the price of the stock. It is shown as “Options” as its title.
When you click on the options link, a series of items will be shown. The composition of the items may differ in the various service listings. However, they are likely to provide similar items.
What will be presented in most options quotes services are options contracts that are due to expire soon. The listings are referred to as an options chain.
This includes all the available options on the given stocks. When factoring in all the expiration dates, this can be quite extensive.
As mentioned, the default listing contains the contracts that are soon to expire. You have a choice to select other expiration dates, which will change the display of contracts to reflect the date you choose.
After choosing the date (or leaving the default), choose whether you want prices for calls or puts. Some services will list the calls first, followed by the puts. Others will list them side-by-side.
It’s important to find the right type of options (call or puts) to avoid making mistakes when trading. It can be confusing for newer traders. It gets easier with practice, though.
Next, decide on the strike prices you’ll want to read. Many investors will focus on the contract prices nearest to the current stock price.
This contract listing will be the at-the-money price. The prices following the at-the-money calls will be the out-of-the-money calls.
For call options, strike prices reflecting in-the-money calls will be listed before the at-the-money calls. For puts, it’s the opposite. The in-the-money puts will follow the at-the-money puts. The prices before the at-the-money puts will be the out-of-the-money puts.
After pinpointing the desired contract, you’ll be shown a bid, ask, and last price, similar to stock quotes. The last price reflects the premium that investors paid for that contract.
That price is not necessarily what you will pay when you place an order to buy. It displays the price of the most recently traded contract for that strike price.
You can usually get a rough indication of what you may pay by taking the midpoint of the bid and ask. However, during fast-moving markets, this method is likely to steer you wrong.
When considering the price, remember that most options contracts are standardized for 100 shares of an underlying stock. Therefore, to get the actual cost (not including commissions), multiply the premiums listed in the options quotes by 100.
Some quotes services will provide a seemingly cryptic symbol for options contracts. However, you can easily recognize the pattern. This quote format is a recent change and reflects most of the information contained in the options contract line items.
It starts with the stock ticker symbol. Next, the expiration date is given (YYMMDD). Then, a letter is displayed showing whether the contract is a call or put (‘C’ or ‘P’). The strike price is next.
Most investors won’t need to decipher the contract symbol as the information needed is displayed, as described in this article. Active traders may find it useful to use this quoting schema to implement automated trading systems. That concept is beyond the scope of this article.
For many quote services, you’ll likely see open interest and volume indicators. These can help you determine the demand for individual contracts.