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Options Trading: A Style Guide

Posted June 21, 2012

Topics: Finance & Investing

The world of options involves a complex jargon, listings, and nomenclature. Following is a suggested style guide for consistency is how options information should be expressed.

In describing attributes and values of listings:

1. The value of an underlying security is expressed in dollars and cents: $55.65 or $87.00 - include both decimal places even when the cents are zeros. Always include a dollar sign.

2. The strike value is expressed without dollar signs, and when round dollar value, no cents are provided. When cents apply, always use two decimal place: 55 or 52.50 or 12.25.

3. The value of an option is expressed in decimal form to two spaces, but without dollar signs. Zeros to the right should be included: 5.70 or 4.00

4. The option premium value represents value per share even though each option controls 100 shares of stock. So a 5.70 option is equal to $5.70 per share, or a single option premium of $570. A 4.00 option is equal to $4.00 per share, so that option is priced at $400.

In describing opening and closing transactions:

1. When entering a long position, describe the transaction as a "buy to open." When closing the long position, it is called "sell to close."

2. When entering a short position, describe the transaction as a "sell to open." When closing the short position, it is called "buy to close." Never describe this is "buying it back" since that is not accurate. You cannot "buy back" something you never owned.

3. In identifying expiration dates, if there are more than one expiration in a month (weeklys, for example), always identify by the last trading day: "Jul 14 call" or "Jul 14 put." When there is only one strike in the month, identify by month only: "Jul call" or "Jul put." Use 3-letter month abbreviations without periods: Jan, Feb, Mar, Apr, May, Jun, Jul, Aug, Sep, Oct, Nov and Dec.

4. In stringing together terms of the option, use all of the style rules in the expression: underlying symbol, expiration, type of option, and option premium: "IBM Jul call at 4" means the IBM July-expiring call is worth $00; or "MSFT Aug put at 3.25" means the Microsoft August-expiring put is valued at $325.