Reading an options ticket

Every options ticket on the feed shows the same fields. Here is what each one means, using a round example: a call on a stock trading at $613, strike $650, expiring in 23 days, premium $12.50. A call gives the buyer the right to buy 100 shares at the strike price, here $650, until the expiry date. A put is the right to sell.

The fields

Premium, $12.50. The price per share. One contract controls 100 shares, so the ticket shows $1,250 per contract. That is also the most a buyer can lose.

Breakeven, $662.50. Strike plus premium for a call, strike minus premium for a put. The stock must be above $662.50 at expiry for the buyer to profit. That is $49.50, or 8.1%, above today's price.

Delta, 0.35. The option moves about $0.35 for each $1 move in the stock, or $35 per contract. Traders also read delta as a rough chance the option finishes in the money, which for a call means above the strike. Here, about 35%.

Implied volatility, 60%. The size of move the market is pricing in, stated as a yearly figure. Over 23 days, 60% implies a one standard deviation move of about $92 either way ($613 times 60% times the square root of 23/365). Roughly, the market sees about a two in three chance the stock ends within $92 of today's price. The ticket prints that number next to IV.

Theta, -0.60. Time decay. With nothing else changing, the option loses about $0.60 per share, $60 per contract, every day. The ticket shows it as a daily cost next to delta. Decay usually speeds up in the last few weeks, most of all for options with a strike near the stock price.

Open interest and volume. Open interest is how many contracts exist. Volume is how many traded today. High open interest and a tight bid-ask spread, the gap between the best price to buy and the best price to sell, mean you can get out near fair value. The ticket shows the spread as a percentage. Above 10% is expensive to trade.

The payoff chart

The small chart on each ticket is profit or loss at expiry for one contract. It runs flat on the left at the full premium lost, then rises after breakeven. The blue line is today's price and the red line is breakeven. The gap between them is the move you need.

Prices on the site can lag the market. Check the live bid and ask at your broker before you place an order, and use a limit order so you set the price you pay.

Before trading options, read Characteristics and Risks of Standardized Options from the Options Clearing Corporation. Buyers of options can lose 100% of the premium paid.

Try this

In a paper trading account, open the option chain for a stock you follow and pick one call about a month out. Write down its premium, breakeven, delta, implied volatility and theta, and the cost of one contract. Check the same contract each day for a week and note how much value theta took while the stock moved.