How To Read Option Quotes

by Das Brain

Before I move on to the topic of “What are put option contracts?” which is Part 3 of this “Intro To Option Trading” series, I want to quickly write about how to read option quotes for a particular underlying stock or equity, by knowing how to read the quotes you will get better idea of what to look for when buying and selling option contracts.

So, let’s get right into it and take a look at the following option quote for YAHOO CALL contracts. Remember a CALL option contract is a contract where the strike price (price of stock at expiration) is at, in or higher than then current underlying stock price which is YAHOO in this example.

Let’s say I am guessing that Yahoo’s stock price will be at or above $25 by January 2008 and I want to buy an option contract to play that position. Between Feb 2007 and January 2008 is approximately 11 months, so this type of long term option contract is called a LEAP, more on this later. Make note that the current stock price of Yahoo is at $23.

Yahoo Option QuoteFor a quick (non real-time) quote I would go to Yahoo Finance to do my research, and put in YHOO in the quote field and click the “Get Quote” buttons. Once the quote comes up, on the left side click the “Options” link, then you will get this screen (screen capture on right).

Now for Jan 08, I would click on the Jan 08 link (red down arrow), and then look for $25 under the “Strike” column. On that line you will also see the actual stock option symbol WYHAE.X , Last Price, Change, Bid Price, Ask Price, Volume and Open Interest.

We can see that the last price was for WYHAE.X (Yahoo Jan08, strike price $25) was $6.50, up $0.30 from yesterday and that the current asking price by sellers is $6.60. For you to get into this position with 2 option contracts would be whatever you bid and get filled at, if you didn’t want to pay what the seller was asking for. Let’s say you bid $6.50 and your option order gets filled. Then you cost for the 2 contracts would be $650 X 2 = $1300 (premium) plus commission.

One thing I would suggest for someone new to option trading is to watch the quote of option contract price in relation to the underlying stock price. For example YAHOO’s stock price to its option contract price. Watch what happens to the option contract price when the stock price goes up, and what happens to the option contract price when the stock price goes down. This monitoring of the price of the contract in relation to the underlying stock it represents will give you a better idea of how quickly, how much option prices move when there is a change in the underlying stock price.

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The above example that I have written was for CALL option contracts. However, the process of obtaining and reading option quotes for PUT option contracts is exactly the same. I hope this article has given you a better idea of how to read option quotes. I encourage you to go to Yahoo Finance and go through the process of getting an option quote. Revisit my blog for the Part 3.

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One Response to “How To Read Option Quotes”

  1. [...] Hey the N_Goodwin, if you want to learn how to read option quotes or chains, here is an article I found on just the subject. MoneyAccumulator.com » Blog Archive » How To Read Option Quotes Check it out, this guy also has a small intro to option tutorial MoneyAccumulator.com » Blog Archive » Intro To Option Trading – Part 1 The tutorial goes from part 1 to part 6 under Option Trading category, I read it, it has helped me understand options a little better. Cheers! Philo [...]