This is installment three in our “Options for Newbies” series. In this series I am going through the subject of options in the most basic way, to help give those new to options a starting point. Even if you’re a veteran, these articles may give you a deeper understanding of some aspects of options.

Breaking news: Last week Peter Glazebrook of Nottinghamshire, England claimed the record for the world’s largest onion, by growing one weighing in at 17 pounds, 15 ounces. Figure 1 below shows a proud Mr. Glazebrook with his prize onion, which handily beat the previous record of 16 pounds, 8 ounces.

FIgure 1 – a giant onion

Say what?? What does this have to do with options? Well, to a beginner, the subject of options is huge, mysterious, and can make your eyes water. In this series, we’re peeling away at that onion, one layer at a time.

In the first two installments, which you can review here and here, I began this peeling process by way of an example using call options on the stock of Apple Inc. Let’s look at how that position would have done, and then use that as a jumping-off place for peeling back some more layers.

Our example options were the September 650 Calls. Each one of these option contracts gave its holder the right to buy (because it was a Call and not a Put), 100 shares of Apple stock (the underlying asset), at $650 per share (the strike price), up to the close of business on Friday, September 21 (the expiration date). This particular option was just one of many at different strike prices and expiration dates that were available at the time. Each option has its own symbol or ticker, to differentiate it from all others. For these options, the symbol was AAPL 120922C650.

That symbol is long, but it is easy to interpret.

AAPL is the root, and indicates the underlying asset. It is the symbol for the stock of Apple, Inc.

120922 is the date on which the option is settled, in the format YYMMDD. It’s the day after the expiration date, which in this case was September 21, 2012. This settlement date is when the underlying asset will change hands, if that happens (it doesn’t always happen).

C is because this option is a Call. For Puts, this… Continue Reading