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Reading an Options Pricing Table - Options Pricing - Options Trading For Beginners - YouTube
Channel: Option Alpha
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Hey everyone, this is Kirk here again at OptionAlpha.com,
and in this video we're going to go through
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reading and options pricing table and really
help you understand what's involved, what
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you need to look at, what don't need to look
at, or what you don't need to worry about.
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And then we're also going to talk about different
order types on a very basic level.
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Here's the deal, broker platforms conveniently
display all options pricing data.
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The contracts, the strikes, the months, everything
in an easy to follow options pricing table
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for investors like us.
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Though confusing at first, it's actually incredibly,
incredibly easy to follow.
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As anything in life, as long as you know what
to look for, then you know exactly what to
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focus on.
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Without further ado, let's jump into our Think
Or Swim platform, and again this is at the
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time I'm doing this video and we're going
to be looking at today D.I.A. which is the
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Dow Jones Industrial E.T.F.
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Trust.
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So right now this is the stock chart of D.I.A.,
along with implied volatility, and to get
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to the trade tab, you just have to go to your
trade tab in any broker platform.
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It's usually pretty easy to follow ... And
just type in the top hand section the ticker
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symbol of the stock that you want to look
at.
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So in this case, we're looking at D.I.A.
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Now a couple of main things pop up initially
and before we get too deep into each of this
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stuff I want to to kind of show you each of
these different sections.
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First of all, you usually have this option
or stock or underlying section.
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Now, in this case the D.I.A.
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underlying section just means the actual stock.
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For example, right now the last traded price
176, the net change of the day is 34 cents,
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the bid, the ask, the volume today, the high,
the low, et cetera, et cetera.
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Now beneath that you'll see something that
looks like this.
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This is going to be your option chain or how
you toggle and see different option contracts.
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Again, different brokers are going to show
it differently, but they might call it the
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option chain, the option pricing table, whatever
the case is.
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In our case, with Think Or Swim, they call
it the option chain, and you can toggle that
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open to reveal all of the different contract
months.
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This is where we start kind of really getting
deep into options pricing table.
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We have now all of these different contracts
that are available to trade for D.I.A. and
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you can see that there's actually a combination
of weekly contracts, there's also some quarterly
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contracts, and then the ones without any additional
verbiage, those are the monthly contracts.
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We have the April monthly, the May monthly,
the June Monthly, et cetera.
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That's how you can read those different contracts.
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Within each of those different contracts,
there's going to be the tag for the contract.
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There's going to usually be some indication
of how many days are left, and then there's
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going to be option contract multiplier.
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Now, in most cases you can pretty much assume
first of all, that all option contracts have
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a 100 multiplier.
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Now what that 100 means is that one option
contract controls 100 underlying shares of
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stocks.
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Some option contracts are very weird and very
non-usual.
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Might have 1 to 150 or 1 to 200.
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Mostly, everything that you'll likely to be
trading in your lifetime is 1 to 100.
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You don't really need to worry about that,
but that's something that I just want to explain
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what that is.
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Next to that, you are going to see the time
left until expiration.
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This is really helpful, because it tells you
how many days are left until expiration.
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Now these aren't trading days, these are calendar
days.
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For examples, if we were trading the April
monthly contracts, those have 25 days left
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until expiration.
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If we were trading the May monthly contracts,
those have 60 days left until expiration.
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This is where we start to develop an idea
of how far out we want to trade.
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Right now you can see that we have January
2018 contracts that are available and those
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have 669 days left until expiration.
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You can really run the gamut of how long and
how far out you want to trade based on how
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long you want to be invested.
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Most of the trading we do here in Option Alpha
centered around 30 days, sometimes we take
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positions 60 days out, but we'll close them
after 10 days or 20 days, depending on if
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they hit our profit targets.
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We generally don't trade anything really longer,
then say 80 or 90 days, just as a basis of
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what we do.
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We just don't find that you need to trade
that far out to generate some income.
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The other thing is the option tags themselves.
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These are a little bit different, we've got
more video tutorials on this, but there's
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basically two styles of tags.
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One, there's the monthly contracts, and then
there's these weekly contracts that are in
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here that have some additional verbiage.
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If you see here, the monthly contract just
has the name of the month, April, A.P.R.,
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or just the designation for the name of the
month, and then the 16 next to it is for 2016,
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that's why I'm doing this video right now.
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Those are the April 2016 contracts.
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Expiration for regular monthly contracts is
the third Friday of every single month.
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That's when those expiration dates happen.
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You can check out our expiration calendar
inside the downloads and P.D.F.
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checklist section of Option Alpha.
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Then, the weekly contracts have a little bit
of an extra little flair to them, and the
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weekly contracts have an extra number, hopefully
you can see this.
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If not, enlarge your video, make it HD.
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But you can see it says, A.P.R.
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one.
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And then this other weekly contract here says
A.P.R.
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two, and it still has the tag for 16, which
is 2016, but it has A.P.R.
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one and A.P.R.
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two.
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What that means is that this contract, A.P.R.
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one expires the first Friday of April.
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The A.P.R.
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two expires the second Friday of April.
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Notice there's not an A.P.R.
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three because the A.P.R.
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threes, or the third Friday of April, is for
the monthly contract.
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So, there will never be an A.P.R.
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three for anything, or a May three, or a Feb
three.
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There won't ever be a third weekly contract,
because those are always designated by the
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monthly contracts.
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But then you can see that there's A.P.R.
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four and A.P.R.
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five, which means that these weekly options
expire the fourth Friday and the fifth Friday
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of April.
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So that's what that little extra tag means.
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Again, it seems really complicated on the
outside, but it's actually incredibly, incredibly
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easy if you know exactly what to look for.
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So now let's do this.
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First of all, in most cases, you can filter
and say, "I only want to look at regular options,"
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"I don't want to look weeklies," or whatever
the case is.
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So, you filter out anything you don't want
to see.
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So, you don't want to see any of these types
of options, you can just filter it and move
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them.
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You only want to see expiration dates from
X to X.
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You can basically see everything that you
want to see by using filters.
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That's one quick little tip.
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If we wanted to go into, let's say April options,
all we're going to do is just open up April
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and you can see it just toggles open.
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Now we've got a lot more information on exact
specific option contracts in pricing for April
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options.
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And again, there's just toggling open April.
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If you want to get into May, you can see those
May contracts open up as well.
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But for right not now we'll just look at one
particular set of contracts for D.I.A.
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Now in this case, right down the middle, this
is how this option pricing table is laid out.
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Right down the middle is going to be the expiration
date.
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Just again to confirm that you're looking
at the right contracts.
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So that's important.
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We want to double check that they're always
the right contracts that you're opening up.
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And then right down the middle you'll actually
see the actual strike price.
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So these are the strike prices that we're
going to be using or looking at for determining
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what we want to do.
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These are the strike prices for April expiration.
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You've got the 175, 175 and half, 176, et
cetera, as many times as you want to see those
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different strike prices.
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Now generally speaking, the pricing table's
divided into two sections.
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On the left hand side you're going to have
your call options.
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This is usually universally used across most
broker platforms.
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You will always see the call options on the
left hand side of the pricing table.
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On the right hand side of the pricing table,
you're going to see the put options.
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Again, strike prices are going to be down
the middle regardless for everything.
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On the right hand side you're going to see
the put options.
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On the left hand side you're going to see
the call options.
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Now within each of these different categories
here, so calls on the left and puts on the
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right, you're going to have virtually the
same columns.
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You can customize and change these columns,
but for the sake of this video we just made
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it very simple and basic with exactly what
you need to know for this pricing table.
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The first thing that you'll see is you'll
see bid and ask on both sides.
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Bid and ask basically just tells you where
the market is and how wide the bid and ask
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is.
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So, the difference between what people are
willing to pay for something and what people
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are willing to sell it for, that is going
to be your bid and ask spread for each individual
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strike price.
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Again, on the strike prices, it's the numbers
to the right or to the left of those strike
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prices that designate the pricing for calls
versus puts.
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So in this case, if I was looking at the 176
call options and I wanted to see the bid and
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the ask, I would find it here.
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If I was looking for the 176 put options and
I want to see the bid and the ask, I would
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find the bid and the ask here.
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So again, very easy to understand and it makes
it ... Even though there's a lot of numbers,
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by focusing in on just the really, really
important aspects, the brokers did really
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do a good job of narrowing down and giving
you as much information as simply as possible,
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is really what it comes down to.
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Now the other thing that we always put on
our pricing tables is the mark.
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This is kind of the last market price or where
things are trading right now.
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This is helpful because it can basically prevent
a little bit of the slippage that might occur
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from what you usually trade.
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We're big fans here of lots of liquidity and
that's how we focus on it with mark, volume,
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and open interest.
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We determine what things have the most liquidity
or not.
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Now in this case, we're looking at, let's
say 176 put options, so we're going to look
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at the put options.
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The bid and the ask spread might be 207 to
211.
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Again this is trading in real time so these
will change, but the actual last price it
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was traded was 209, which you can see is kind
of in between this price.
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So, if you offer to buy at 207 when the last
traded price was 209, you might not get filled.
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If you offer to buy at 212, when the last
traded price was 209, you might have paid
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a little bit too much.
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So, that's why the bid, and the ask, and the
mark is really, really important to see those
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differences right here on the platform.
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Again, with the call side you can see the
same thing.
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You've got the bid and the ask here, and then
the mark is over there to the left.
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You can see that this is the last market price
and last traded price.
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Now in addition to this, we also have volume
and open interest.
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Volume and open interest are really important.
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Volume shows you how many contracts have been
traded today.
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So, today's volume, how many things are trading.
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You can see, for example here, on the call
side there's only three contracts that have
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been traded today.
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Three new contracts that have been traded
at the 175 and a half strike for the April
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D.I.A.
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contracts.
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That's really not too many, that's not a lot
of volume.
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On the other hand, you can see the 176 strike
calls, which are here.
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So the 176 on the call side.
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You can see there's been 150 contracts that
have been traded at the 176 strike and that's
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really important.
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It shows you ... It looks like the 176 strike
prices are a little bit more active and you
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might get them filled a little bit quicker
or better pricing if you go after the 176
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versus the 175 and a half.
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Now it's also important to note that the open
interest are the remaining contracts that
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are open and available that have not been
closed out.
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So in this case with D.I.A., there have been
150 contracts that have been traded today.
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3,746 are still open.
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Meaning that there's still a contract out
there between two parties.
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You'll also notice that sometimes there'll
be a zero in the open contracts, but they'll
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be volume and you'll ask yourself, "Well why
is it that there is volume?"
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Meaning we know three people traded these
contracts today, but there's a zero here.
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There's really two explanations for this.
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One, is that they could've been all closing
orders, meaning those three contract could've
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closed everything out, meaning buyers and
sellers reverse their orders and closed out
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their positions, meaning there's no open positions
out there on either side.
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It also could be because, the open interest
is a one day lagging number, meaning that
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open interest is calculated one day after
the market trades.
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So, tomorrow if these three positions were
all new positions, that number three would
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transfer over to the open interest column
and it would show that there's three open
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positions available on the market.
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For our purposes, when we look at an options
pricing table, we generally like to focus
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on things that have higher volume and liquidity.
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Now that's gonna be relative, because higher
volume on D.I.A.
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might look really low on something else like
Apple or Chipotle, but it's relative.
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But you'll see on the options pricing table
when you start to really dig in to a lot of
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this stuff, what looks like good liquidity,
and good volume, and open interest.
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Those are how the options pricing table is
broken out.
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Hopefully that was a really good example,
just kind of high level of how the options
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pricing table works.
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If you have questions please let me know.
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We'll obviously dig a little deeper into options
pricing and stuff in the next couple of videos.
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Before we close out for today, I want to also
go through the different kind of general order
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types that you can place.
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In this case, we're going to be looking at
buying and selling calls and buying and selling
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puts.
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Just the basic building blocks of everything
that we do here at Option Alpha.
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If we wanted to buy, let's say this 176 strike
call option.
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All we have to do is click on the row here,
anywhere on the row to highlight.
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We can right click on here and go over to
buy, and then just go over to a single order.
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Now you'll start to see all these different
complex orders start to populate and we'll
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go through those in other video tutorials
and later on in track one, and track two,
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and track three.
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Right now, we're just going to a single option
order.
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That's going to bring up this order dialog
box to go ahead and buy this contract.
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Now it's going to start to look a little familiar,
because now we start to see this option order
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start to really take shape based on everything
that we've talked about previously in track
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number one.
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You can see that the side that we're opening
up is a buy side, we're buying to open.
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We've got one contract.
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The symbol is D.I.A.
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The expiration is April 2016.
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The strike price is 176.
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It is a call option, versus a put option,
and finally the price that we're going to
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pay right now that's trading live time is
212.
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Now that's kind of the basics of the order
type or the option contract that we're getting
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into.
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This stuff on the right hand side now gets
into the different order specifics.
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All of this stuff you can change and adjust,
but now the stuff on the right hand side here,
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these are the order specifics.
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So, how aggressive you want to be in pricing?
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How long does the order last?
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Which exchange is it routed to, et cetera.
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In this case, there's usually only a couple
choices for how long the order lasts.
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I'm going to start here with this box here,
which is either a day or G.T.C.
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order.
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A day order means that the order is only good
for today's trading session.
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Meaning that after today's trading session
this order no longer becomes relevant and
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it expires.
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So it would either gets filled or it expires
at the end of the day.
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In the case of a G.T.C.
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order, a G.T.C.
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order means it's good until canceled or good
till canceled.
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Meaning that this order will continue to work
in this market until you cancel it or it gets
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filled by the market.
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Now we generally prefer always to use G.T.C.
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orders for automatic closing orders and for
stop loss orders, anything we do where we
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want a predefined exit.
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We use G.T.C.
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orders to do that for us, to automate the
entire trading process.
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For order entry, we like to do day orders,
because we like to know exactly what's we're
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going to get into or out of in a security
for that particular day.
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We like use a lot of day orders to get into,
we like to know exactly what we're doing and
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what type of order we're entering in the market.
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Exchange, you can also route your order to
any particular exchanges you want.
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We always choose best, so whatever the best
exchange is the brokers will route it to best,
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no need to mess with that.
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And then within here you have different order
types.
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You have a market order, which we have video
tutorials on this as well, but quickly market
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order means fill me at the next market price.
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So when you see the market order in there
you see that the price goes away, because
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it's not that you're getting filled that whatever
happens.
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It's just that the next market price that's
quoted you're going to be filled.
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You'll also have limit orders, which is what
we use 99.9% of the time is limit orders.
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Limit means limit my price to exactly what
I say it is in this box.
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I can change this box.
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I can type in a new price.
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I can tell the market I only want to get filled
if the price goes down to $2, the price is
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currently at $2.15.
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I only want it get filled if it goes down
to $2, et cetera.
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Then there's other things like stop, stop
limit, trilling stop limit, market on close,
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limit on close, all things we go through in
some of the modules that we have here at Option
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Alpha.
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The two key ones that we use for sure are
limit orders and then the difference between
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day and G.T.C.
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orders.
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That's really 99.9% of all the trading that
we do.
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We rarely use stop orders.
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We rarely use market orders, if ever.
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I don't think I've ever really used a hard
fast market order on a consistent basis.
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Most of the trading we do here at Option Alpha
is around limit orders, and G.T.C., and good
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till canceled orders, and day orders.
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So that's how we do a single leg
call option.
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If we were to buy a put option, we would just
highlight the row that we want, right click
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again, go over to buy, and go down to single,
and again now it brings up everything that
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we want to do.
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Same strike price, same expiration date, same
symbol, same number of contracts, but now
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the only thing that changed is the type of
contracts.
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So, a put option versus a call option, and
now the price will change as well to reflect
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the new market price that's there.
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All of the same mechanics are basically the
same, it's just if you want to buy a put option
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versus buying a call option.
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So hopefully this has been really helpful
to go through.
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Again, thank you so much checking out these
videos here at Option Alpha.
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If you have any comments or feedback ask them
in the comment section right below.
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If you love this video, please let us know.
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Share it online.
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