Using the Daily Options Listings
Online trading is a natural for the options market. The ability to monitor a changing market on the basis of only a 20-minute delay is a significant advantage over telephone calls to a broker, and for an extra charge you can get real-time quotations (or as close as possible to real time) online. The Internet is also likely to be far more responsive than a broker, who may be on another line, with another client, or away from the desk when you call. For you as an options trader, even a few minutes of inaccessibility can create a lost opportunity. Of course, exceptionally heavy volume market periods translate to slowdowns, even on the Internet.
In the past, options traders depended on alert brokers, hoping they would be able to telephone them if price changes made fast decisions necessary.
Smart Investor Tip
You can make good use of online sites offering free options and stock quotes. Three sites with exceptional quotation services are quote.com (http://new.quote.com), e*trade (https://us.etrade.com), and Yahoo! Finance (http://finance.yahoo.com). You can also go directly to the Chicago Board Options Exchange (CBOE) to get detailed options quotes (www.cboe.com) or check the major exchanges (www.nyse.com, www.nasdaq.com, and www.amex.com).
Example of Daily Options Listing
Not only are you more able to work on your own through discount service brokers and without expensive and unneeded broker advice; you also need to be online to maximize your market advantage. Option pricing can change from minute to minute in many situations, and you need to be able to keep an eye on the market.
Whether you use an automated system or published options service, you also need to learn how to read options listings. A typical daily options listing from the month of May 2004 is summarized in Table above.
The details of what this table shows are:
- First column: The underlying stock and the current market value of the stock. In this example, Wal-Mart's current price was $45.71 per share.
- Second column: This shows the striking price for each available option. The example includes options with striking prices between 45 and 52.50 per share. In this particular case, Wal-Mart included options in between the normal five-point increments.
- Third, fourth, and fifth columns: These show current premium levels for calls. Note two trends. As striking prices rise farther above current market value, call values decline; and as time until expiration extends outward, call values rise.
- Sixth, seventh, and eighth columns: These show current premium levels for puts. The same two trends are evident here. However, because put valuation moves in a direction opposite that of calls, the farther in the money, the higher the put value. For example, the 52.50 put is almost 7 points in the money. This is reflected in the higher premium value, and additional time further adds to put valuation.
In this example, Wal-Mart trades on the March, June, September, December (MJSD) cycle. However, in all cases, the three months following the current month always have options as well. The report was taken in December, so options are available for January, February, and March (and then for June, September, and December).
Example of LEAPS Listings
|Wal-Mart||(WMT)||Jan 08||Jan 09||Jan 08||Jan 09|
For LEAPS, the same information is available but for longer terms. For comparable LEAPS listings, see Table above.
In this example, premium values are considerably higher for the same range of striking prices. Since there is much more time until expiration, time value is also higher for the LEAPS options. This opens up a broader range of strategic possibilities for both buyers and sellers. LEAPS contracts always expire in January each year, so as on the end of 2007, the long-term values show January expirations only. Also, the interim values for LEAPS (47.50 and 52.50) were not available for Wal-Mart two years out; thus, no current value exists for those valuations.