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New Changes to Option Trading

Have you heard about the $0.50 strike program? Under the new plan, options exchanges can list $0.50 strike prices on a handful of low priced stocks. To qualify, the underlying stock must close at $3 or less on the previous trading day and have average daily volume of 1,000 options contracts during the previous three months. Once added to the program, the exchanges can list 50-cent strikes like $1.50, $2.50, and $3.50. The intent of the $.50 Strike Program is to expand the ability of investors to hedge risks associated with stocks trading at or under $3 and to provide finer intervals of $0.50, beginning at $1 up to $3.50.  Examples of recently eligible stocks include Ambac Financial (ABK), Gigamedia (NASDAQ:GIGM), and PMI Group (PMI).
If you’re broker hasn’t changed options symbols yet, they will soon. Beginning February 12, 2010 U.S.-listed option symbols will undergo a monumental facelift. Under the OSI plan, the four- and five-character OPRA codes will be replaced with a new, more easily discernible Symbology Key. For example, Apple Inc.’s (NASDAQ:AAPL) April 250 put is currently listed as AJL PE. Following the switch, the suggested symbol for the same option will look like this: AAPL 10 04 17 P 00250 000. This will make it easier for option players to decode the underlying stock, specific expiration date, type of option, and detailed strike price. The consolidation process is expected to be complete in May 2010. It’s important to note that brokers are treating the new option codes as advisory rather than mandatory. While all are including the four required elements—the root symbol, the specific strike, the expiration date, and the type of option (put or call) — they are sequencing these elements according to their own preference. For example, Charles Schwab will render the Apple April 2010 250 put as AAPL 04 17 2010 250 P (ticker, expiration month, expiration day, expiration year in four digits, strike price, call/put indicator).

Disclosure: no positions