42 lines
2.3 KiB
Plaintext
42 lines
2.3 KiB
Plaintext
Chapter 1: Definitions 25
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MORE STRIKING PRICE CODES
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The letters A through T cannot handle all of the possible striking price codes. Recall
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that many stocks, especially lower-priced ones, have striking prices that are spaced
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2½ points apart. In those cases, a special letter designation is usually used for the
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striking price codes:
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Striking Price Code
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u
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V
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w
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X
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y
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z
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Possible Meanings
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7.5 or 37.5 or 67.5 or 97.5 or even 127.5!
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12.5 or 42.5 or 72.5 or 102.5 or 132.5
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17.5 or 47.5 or 77.5 or 107.5 or 137.5
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22.5 or 52.5 or 82.5 or 112.5 or 142.5
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27.5 or 57.5 or 87.5 or 117.5 or 147.5
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32.5 or 62.5 or 92.5 or 122.5 or 152.5
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Typically, only the first or second meaning is used for these letters. The higher-priced
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ones only occur after a very expensive stock splits 2-for-l (say, a stock that had a strike
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price of 155 and split 2-for-l, creating a strike. price of 155 divided by 2, or 77.50).
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WRAPS
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Note that any striking price code can have only one meaning. Thus, if the letter A is
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being used to designate a strike price of 5, and the underlying stock has a tremen
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dous rally to over $100 per share, then the letter A cannot also be used to designate
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the strike price of 105. Something else must be done. In the early years of option
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trading, there was no need for wrap symbols, but in recent - more volatile - times,
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stocks have risen 100 points during the life of an option.
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For example, if XYZ was originally trading at 10, there might be a 9-month, XYZ
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December 10 call. Its symbol would be XYZLB. If, in the course of the next few
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months, XYZ traded up to nearly 110 while the December 10 call was still in exis
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tence, the exchange would want to trade an XYZ December 110 call. But a new let
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ter would have to be designated for any new strikes (A already stands for 5, so it can
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not stand for 105; B already stands for 10, so it cannot stand for 110, etc.). There
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aren't enough letters in the alphabet to handle this, so the exchange creates an addi
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tional option base symbol, called a wrap symbol.
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In this case, the exchange might say that the option base symbol XYA is now
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going to be used to designate strike prices of 105 and higher ( up to 200) for the com
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mon stock whose symbol is XYZ. Having done that, the letter A can be used for 105,
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B for 110, etc. |