Short Course on Options Symbols and Expiration

This week's Options Forum takes a look at some tools to help investors decipher options quotes and navigate the exercise of an in-the-money option.

Remember, we're always open to reader questions, so drop a note to Options Forum, and remember to include your full name.

The Enigma of Options Codes

From time to time, the Options Forum receives questions from readers wondering what the heck's up with the weird letters they see when they look at an options quote on their favorite, or not so favorite, stock. Admittedly, those options extension symbols can be confusing.

George A. Fontanills, in his book The Options Course, points out that all option symbols express the following info: the underlying financial instrument, root symbol, expiration month, strike price and type of option, and whether it's a put or a call.

Here's what the option quote for an August 65 call option on Cisco (CSCO) will typically look like: CWYHM.

The CWY is Cisco's option root symbol.

The H tells you that the option is a call, and that it expires in August. The monthly expirations follow the alphabet through calls and puts, meaning that January calls take the code A, February calls, B; and March, C through L for December. Put option codes pick up right there; January puts take the code M and December takes X.

The M tells you the strike price. That's a little more complicated. A could be 5, 105, 205 or 305 and, thankfully, there are few underlying stocks that would have an option listed with a 5 strike price and a 105 strike price. The codes run A though T for whole numbers, at five-dollar intervals. At U, they began again with fractional strike prices starting at 7 1/2 running through 32 1/2 for the Z code.

OK, this is a bit complicated, but all of this information can be easily had at the Options Industry Council's Web site. (It may be easier to read if printed out, depending on the size and resolution of your monitor.)

Fortunately, most data vendors that supply options quotes spell out the type of option, the strike price and expiration in plain English, so even the novice investor can follow them.

Expiring Easily

I have never purchased an option. Here is my question: What if I buy an option and do nothing before the expiration date, I just let it expire?

If I purchase a call with a 50 strike price, and the stock goes from 50 to 70, and I potentially can make a profit, would I just lose out if I didn't sell it before it expires?

Garrick Taylor

First off, if you buy an option with a 50 strike and the stock runs to 70, congrats. In a situation like that, there are a few things you can do.

One, you can sell the call option and close out the position and make a profit because the call will be deep in the money and worth a lot more than you paid for it.

If you have the capital and the desire to exercise the option and purchase the underlying stock, simply call your broker and instruct that person to do so. Many times, brokers will automatically exercise the option if it is in the money by a certain amount, and provided there's the capital in your account to cover the purchase of the stock.

Lance Ettus, at ValueLine Options in New York City, says that your broker usually will exercise the option automatically, as long as it's in the money by some small minimum (25 cents or 50 cents).

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