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FAQ

Basics

 

A stock option is a contract that gives the owner the right, but not the obligation, to buy or sell a particular stock at a fixed price (the strike price) for a specific period (until expiration). The contract also obligates the seller or writer to meet the terms of delivery if the owner exercises the contract right.

To learn more about stock options, view OIC's What is an Option? section or consider taking the Options Basics online class.

 

 

A call is an option contract that gives the owner the right to buy the underlying stock at a specified price (its strike price) for a certain, fixed period (until expiration). For example, an American-style XYZ Corp. July 60 call entitles the buyer to purchase 100 shares of XYZ Corp. common stock at $60 per share before the option's July expiration date. For a call option writer or seller, the contract represents an obligation to sell the underlying stock if the option is assigned.

To learn more, view OIC's What is an Option? section or consider browsing Options Basics resources.

 

 

A put is an option contract that gives the owner the right to sell the underlying stock at a specified price (its strike price) for a certain, fixed period (until expiration). For example, an XYZ Corp. July 60 put entitles the owner to sell 100 shares of XYZ Corp. common stock at $60 per share before the option's July expiration. For the writer or seller of a put option, the contract represents an obligation to buy the underlying stock from the option owner if the option is assigned.

To learn more, view OIC's What is an Option? overview page or consider browsing Options Basics resources.

 

 

An option holder may exercise an American-style option any time before expiration. An option holder may exercise a European-style option only during a specified period before expiration. Currently, every European-style option is exercisable only on its expiration date.

All exchange-traded equity options are American-style. Most index options are European-style. Check each index option’s product specifications to verify the options exercise style.

Please visit OCC's Series and Trading Data for a list of options that are currently available.
 

 

 

LEAPS® or Long-term Equity AnticiPation Securities are options, both calls and puts, with expirations as far as two and one-half years in the future. Conventional options typically offer contracts with expirations up to nine months in the future.

Currently, equity LEAPS® have two series at any time with January expirations. For example, in November 2014, investors would see January 2016 and January 2017 LEAPS listed for eligible stocks and indexes.

For an explanation of LEAPS® cycles, visit our LEAPS® FAQ. For information on various strategies using these versatile instruments, visit our Introduction to LEAPS®.

 

 

There are several recommended initial steps to find a broker:

  • Talk with sales people at several firms. Ask about investment experience, professional background and education.
  • Investigate disciplinary actions taken by securities regulators and criminal authorities against any brokerage firm and/or sales representative by calling the National Association of Securities Dealers, Inc (NASD) toll free hot line at 1-800-289-9999. Contact your state securities regulators to verify the license of a sales representative. Investors can also check the background of a broker online via FINRA BrokerCheck. FINRA will provide information on disciplinary actions taken by securities regulators and criminal authorities. State securities regulators also can tell you if a sales representative is licensed to do business in your state.
  • Understand pay and fee structures. Ask for a copy of the firm's commission schedule. Some firms pay sales staff based on the amount of money invested by a customer and the number of transactions done in customer's account. A firm may pay more compensation to a sales representative for selling their firm’s own investment products. Ask what fees or charges are required to open, maintain and close an account.
  • Evaluate what services meet your needs. Determine whether you need the services of a full-service or a discount brokerage firm. A full-service firm typically provides transaction services, recommendations, investment advice and research support. A discount broker generally provides transaction services and does not make recommendations on securities to buy or sell. Fees may differ depending on services the firm provides.

 

 

In the financial markets, an exchange refers to a securities exchange where members of the exchange trade stocks, options and/or futures contracts for their own accounts and the accounts of their customers.

These exchanges are registered with and regulated by the Securities and Exchange Commission (SEC). The current U.S. exchanges that list and trade equity, ETF and index options contracts are:

 

 

Absolutely. The Investor Services department is a one-stop comprehensive options resource center that provides information and supports all products traded on all OCC participant exchanges.

Email options@theocc.com or live chat at www.optionseducation.org and representatives will be happy to answer your questions.

Investor Services assists investors with options-related questions without soliciting securities or providing investment advice.

 

 

Known as The Characteristics and Risks of Standardized Options, this booklet briefly describes the characteristics of options and risks to investors of maintaining positions in options. There is an SEC rule that requires the U.S. options markets to prepare, and brokerage firms to distribute this booklet. Prior to buying or selling an option, investors must read a copy of this booklet.

View an online copy of this document or order a free brochure by contacting an Investor Services representative at options@theocc.com.

 

 

The Options Industry Council (OIC) currently offers a variety of free webinars for investors:

You may find a complete list of webinar dates on our Events page. Register online or contact an Investor Services representative for more information at options@theocc.com.

 

 

The strike price is the price at which an option holder can purchase (call) or sell (put) the underlying stock, sometimes called striking price, strike or exercise price.

 

 

Why is the XYZ 50 strike call option quote showing a last trade of $10.50 when XYZ is trading at $68 a share? Shouldn’t the call option at least be trading near the $18 of intrinsic value?
The last trade price may not reflect a recent trade. Although there will be a bid and an ask for options, they may not trade every minute, so trade prices posted as last trade may have occurred several hours, days or weeks ago. Therefore, many investors will use the option's current quoted bid and ask price as a better indicator of the option's current market value. This may offer a more accurate market valuation of any particular option.