1. Options Basics: Introduction
  2. Options Basics: What Are Options?
  3. Options Basics: Why Use Options?
  4. Options Basics: How Options Work
  5. Options Basics: Types Of Options
  6. Options Basics: How To Read An Options Table
  7. Options Basics: Options Spreads
  8. Options Basics: Options Risks
  9. Options Basics: Conclusion

We’ve already talked about the differences between calls and puts, but there exist some other ways of categorizing options contracts. American options can be exercised at any time between the date of purchase and the expiration date. The example about Cory's Tequila Co. is an example of the use of an American option. Most exchange-traded options are of this type. European options are different from American options in that they can only be exercised at the end of their lives on their expiration date. The distinction between American and European options has nothing to do with geographic location, only with early-exercise. Most options on stock indices are of the European type. Because the right to exercise early has some value, an American option typically carries a higher premium than an otherwise identical European option.

American and European Options

Options can also be categorized by their duration until expiration. Short-term options are those that expire generally in a year or less. Long-term options with expirations greater than a year are classified as long-term equity anticipation securities, or LEAPs. By providing opportunities to control and manage risk or even to speculate, LEAPS are virtually identical to regular options. LEAPS, however, provide these opportunities for much longer periods of time. Although they are not available on all stocks, LEAPS are available on most widely held issues.

Options can also be distinguished by when their expiration date falls. Traditionally, listed options have expired on the third Friday of the month. However due to increased demand, sets of options now expire weekly on each Friday, at the end of the month or even on a daily basis.

Options Exchanges

Options traded on exchanges are called listed options. In the U.S. there are a number of exchanges, both physical and electronic, where options are traded. Options can also be traded directly between counterparties​ with the use of an exchange; these are known as over-the-counter (OTC) options. Many times, financial institutions will use OTC options to tailor specific outcome events that are not available among listed options. In order to provide liquidity to options markets, there exist market makers who are required to “make” a two-sided market in an option if asked to quote. Market makers, using theoretical pricing models, can take advantage of arbitrage and theoretical mispricings between the options’ perceived value and its market price.

The simple calls and puts we've discussed are sometimes referred to as plain vanilla options. Even though the subject of options can be difficult to understand at first, these plain vanilla options are as easy as it gets. Because of the versatility of options, there are many other types and variations of options. Non-standard options are called exotic options, which are either variations on the payoff profiles of the plain vanilla options or are wholly different products with "option-ality" embedded in them. For example, so-called binary options have a simple payoff structure that is determined if the payoff event happens and doesn’t care about the degree. Other types of exotic options include break-out, break-in, barrier options, lookback options, Asian options and Bermudan options.


Options Basics: How To Read An Options Table
Related Articles
  1. Trading

    Exploring The World Of Exotic Options

    Exotic options provide investors with new alternatives to manage their portfolio risks and speculate on various market opportunities. The pricing for such instruments is considerably complex, ...
  2. Investing

    Why Options Trading Is Not for the Faint of Heart

    Trading options is not easy and should only be done under the guidance of a professional.
  3. Trading

    Options Pricing

    Options are valued in a variety of different ways. Learn about how options are priced with this tutorial.
  4. Trading

    Trading Options on Futures Contracts

    Futures contracts are available for all sorts of financial products, from equity indexes to precious metals. Trading options based on futures means buying call or put options based on the direction ...
  5. Trading

    Give Yourself More Options With Weekly and Quarterly Options

    Weekly and quarterly options were introduced to give a greater choice of option expirations to investors, and enable them to trade more efficiently.
  6. Trading

    How to Make Money by Trading Index Options

    Index options are less volatile and more liquid than regular options. Understand how to trade index options with this simple introduction.
  7. Trading

    Three Ways to Profit Using Put Options

    A brief overview of how to profit from using put options in your portfolio.
Frequently Asked Questions
  1. When are Beneficiaries of a Will Notified?

    Learn when the beneficiaries of a will must be notified, and understand how this requirement varies depending on whether ...
  2. Why Does Larry Page Pay Himself a $1 Salary?

    Google co-founder Larry Page continues to take an annual salary of only $1 as chief executive officer.
  3. What is Common Stock and Preferred Stock?

    Learn about the differences between common and preferred shares. Explore situations where preferred shares have more favorable ...
  4. Can CareCredit be Used for Family Members?

    Learn more about the available options that CareCredit offers to pay for out-of-pocket medical procedures with little to ...
Trading Center