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Two kinds of Options are Calls and Puts by Ron Ianieri

February 1, 2008

Ron Ianieri Sm

A call option gives the buyer the right but not the obligation to buy a specific security at a specific price by a specific date. It’s a way of “locking in” the purchase price of the stock for a period of time.

A put option gives the buyer the right but not the obligation to sell a specific security at a specific price by a specific date. It’s a way of “locking in” the sales price of a stock for a period of time.

The specific date is known as the contract’s expiration date. On or prior to the expiration date the holder of the option contract has the right to “exercise” the option.

The term exercise means the process by which the buyer of an option converts the option into a long stock position in the
case of a call or a short stock position in the case of a put.

The term assign or assignment means the process by which the seller of an option is notified of the buyer’s intention to
exercise.

Buyers of options exercise. Sellers of options are assigned.

The strike price or exercise price is defined as the price at which the holder has the right to buy (for a call) or sell (for a put), the underlying security. Strike prices are quoted in dollars, i.e. May 50 calls means May $50.00 strike calls.

There are several other important terms in an option contract:

A long position is defined as any position which will theoretically increase in value should the price of the underlying security increase. Vice versa, the position will theoretically decrease in value should the underlying security decrease.

The buying of stock, the buying of a call, or the sale of a put all constitute a long position.

A short position is defined as any position which will theoretically increase in value should the price of the underlying security decrease. Vice versa, the position will theoretically decrease in value should the underlying security increase.

The selling of stock, the selling of a call, or the buying of a put all constitute short positions.

The “option class” identifies the specific underlying security the option is written on. The “option series” describes the expiration month and strike price. As an example, let’s use the Microsoft (MSFT) May 65 calls.

MSFT is the option class. May 65 call is the option series. May is the expiration month and 65 is the strike price.

Let’s try one more. How about the Home Depot January 35 puts?
Home Depot (HD) is the option class. January is the expiration month and 35 the strike price.

All stocks and options are identified by symbol. We have discussed how the stock itself has a symbol (stock symbol HD =
Home Depot, while MSFT = Microsoft.)
Options have symbols too. These symbols are standardized for all exchange traded (listed) options. A different letter identifies each specific month’s call or put. The chart below shows which letters coincide with which month’s calls and which month’s puts.

Month Calls Puts
January A M
Febraury B N
March C O
April D P
May E Q
June F R
July G S
August H T

September I U
October J V
November K W
December L X

Following the month symbol is the strike price symbol. A letter represents each different strike price. These strike prices are also standardized for all listed options, as follows:
A = 5 H = 40 O = 75 V = 12.5
B = 10 I = 45 P = 80 W = 17.5
C = 15 J = 50 Q = 85 X = 22.5
D = 20 K

= 55 R = 90 Y = Not Assigned
E = 25 L = 60 S = 95 Z = Not Assigned
F = 30 M = 65 T = 100
G = 35 N = 70 U = 7.5

For example, let’s look at this symbol HD GF:

HD is the stock symbol that represents Home Depot
G signifies the month and type which is July calls
F indicates strike price that is 30
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Written by Brock Hamilton · Filed Under Option Trading 

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