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The Option Chain

Options involve risk and are not suitable for all investors.
Options involve risk and are not suitable for all investors. Certain requirements must be met to trade options. Before engaging in the purchase or sale of options, investors should understand the nature of and extent of their rights and obligations and be aware of the risks involved in investing with options. Please read the options disclosure document titled "Characteristics and Risks of Standardized Options (PDF)" before considering any option transaction. You may also call the Investment Center at 877.653.4732 for a copy. A separate client agreement is needed. Multi-leg option orders are charged one base commission per order, plus a per-contract charge.

The maximum loss, gain and breakeven of any options strategy only remains as defined so long as the strategy contains all original positions. Trading, rolling, assignment, or exercise of any portion of the strategy will result in a new maximum loss, gain and breakeven calculation, which will be materially different from the calculation when the strategy remains intact with all of the contemplated legs or positions. This is applicable to all options strategies inclusive of long options, short options and spreads. To learn more about Merrill's uncovered option handling practices, view Naked Option Stress Analysis (NOSA) (PDF).

Early assignment risk is always present for option writers (specific to American-style options only). Early assignment risk may be amplified in the event a call writer is short an option during the period the underlying security has an ex-dividend date. This is referred to as dividend risk.

Long options are exercised and short options are assigned. Note that American-style options can be assigned/exercised at any time through the day of expiration without prior notice. Options can be assigned/exercised after market close on expiration day. View specific Merrill Option Exercise & Assignment Practices (PDF).

Supporting documentation for any claims, comparison, recommendations, statistics, or other technical data, will be supplied upon request.
Options trade on the open market just as stocks do, however there are additional data points displayed that are specific to options – this is depicted on the option chain. An option chain is utilized by investors to view the pricing and activity of all of the listed options for the selected underlying.

How is the option chain organized?

  • Calls and Puts – Options chains are normally broken down into two sections, calls and puts. Calls are displayed on the left and puts on the right. Purchasers of call contracts own the right to buy and sellers of call contracts have the obligation to sell. Purchasers of put contracts own the right to sell and sellers of put contracts have the obligation to buy.
  • Strike Price – The strike price is typically displayed in the center column of the option chain. This is the price at which the put or call can be exercised.
  • Expiration Date – The option chain is by default sorted by expiration date with the options expiring first at the top. The expiration date will determine how long the contract is in existence. This is sometimes depicted as days to expiration (DTE).
  • Color Coding – Options that are highlighted ‘green' are in-the-money and options that are highlighted ‘red' are out-of-the-money. (Calls are in-the-money when the strike price is below the market price of the underlying. Puts are in-the-money when the strike price is above the market price of the underlying). The color coding is used to easily see what is in, out, or near the money.

What do all the quote details mean?

  • Last – The last price represents the last price at which the option was traded. This could be an opening or a closing transaction. It is important to note that the last time an option was traded could be within seconds, minutes, days, weeks, or even months and may not be an accurate depiction of the current value of the option. The last price in conjunction with the bid and ask is used to quote the value of the option.
  • Change – The change displays the difference of the last price and previous day's close.
  • Bid – The bid represents the best available price that the option can be sold for.
  • Ask – The ask represents the best available price that the option can be purchased for.
  • Volume – Volume represents the amount of transactions that have occurred on the current trading day. This figure will update intra-day and is used in conjunction with open interest to determine if the options contract is considered liquid. (Most options do not trade through the extended hours therefore, previous day information may be displayed prior to the market opening) Any option transaction regardless if it is opening or closing will be reflected in the volume.
  • Open Interest – Open interest shows the amount of contracts in existence for the option. This figure is only updated once a day and will differ from volume. At the end of the trading day all contracts that were closed are subtracted from open interest and all contracts that were open are added to open interest.
  • Adjusted Options – Sometimes an option will be displayed on the chain with an “A”. This is calling out that an adjusted option exists within the options series. You may notice an adjusted option has different volume and quotes displayed.
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What are Options?

What is an Option? What are the Benefits and Risks? Options Pricing Leverage and Risk Exercising Options The Option Chain

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Options involve risk and are not suitable for all investors. Certain requirements must be met to trade options. Before engaging in the purchase or sale of options, investors should understand the nature of and extent of their rights and obligations and be aware of the risks involved in investing with options. Please read the options disclosure document titled "Characteristics and Risks of Standardized Options (PDF)" before considering any option transaction. You may also call the Investment Center at 877.653.4732 for a copy. A separate client agreement is needed. Multi-leg option orders are charged one base commission per order, plus a per-contract charge.

The maximum loss, gain and breakeven of any options strategy only remains as defined so long as the strategy contains all original positions. Trading, rolling, assignment, or exercise of any portion of the strategy will result in a new maximum loss, gain and breakeven calculation, which will be materially different from the calculation when the strategy remains intact with all of the contemplated legs or positions. This is applicable to all options strategies inclusive of long options, short options and spreads. To learn more about Merrill's uncovered option handling practices, view Naked Option Stress Analysis (NOSA) (PDF).

Early assignment risk is always present for option writers (specific to American-style options only). Early assignment risk may be amplified in the event a call writer is short an option during the period the underlying security has an ex-dividend date. This is referred to as dividend risk.

Long options are exercised and short options are assigned. Note that American-style options can be assigned/exercised at any time through the day of expiration without prior notice. Options can be assigned/exercised after market close on expiration day. View specific Merrill Option Exercise & Assignment Practices (PDF).

Supporting documentation for any claims, comparison, recommendations, statistics, or other technical data, will be supplied upon request.
View definitions for investment terms in our Glossary.
For purposes of all the computations discussed in this article, commissions, fees and margin interest and taxes, have not been included in the examples. These costs obviously will impact the outcome of any stock or option transaction. Any strategies discussed, including examples using actual securities and price data, are strictly for illustrative and educational purposes only and are not to be construed as an endorsement, recommendation or solicitation to buy or sell securities. Past performance is not a guarantee of future results.
This material is being provided for informational purposes only. Nothing herein is or should be construed as investment, legal or tax advice, a recommendation of any kind, a solicitation of clients, or an offer to sell or a solicitation of an offer to invest in options. The information herein has been obtained from third-party sources and, although believed to be reliable, has not been independently verified and its accuracy or completeness cannot be guaranteed.
Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.
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Investing in securities involves risks, and there is always the potential of losing money when you invest in securities.

Asset allocation, diversification, and rebalancing do not ensure a profit or protect against loss in declining markets.
Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

This material is not intended as a recommendation, offer or solicitation for the purchase or sale of any security or investment strategy. Merrill offers a broad range of brokerage, investment advisory (including financial planning) and other services. Additional information is available in our Client Relationship Summary (PDF).

Merrill Lynch, Pierce, Fenner & Smith Incorporated (also referred to as "MLPF&S" or "Merrill") makes available certain investment products sponsored, managed, distributed or provided by companies that are affiliates of Bank of America Corporation ("BofA Corp."). MLPF&S is a registered broker-dealer, registered investment adviser, Member Securities Investor Protection (SIPC) popup and a wholly owned subsidiary of Bank of America Corporation ("BofA Corp.").
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