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1.4  OPTIONS:  Interpreting Reported Prices

I n this topic, you will learn how to interpret option information commonly reported in the financial press.  Table 1.3 provides a recent example for the Ford Motor Company, March 23, 2011. You can relate this information to the definition of an option provided in section 1.2.

ITable 1.3

Reported Option Prices

 

Ford Motor Company (NYSE:F) March 24, 2011        
Call Options            
Strike Symbol Last Chg Bid Ask Vol Open Int
10 F110325C00010000 4.54 0 5.05 5.1 42 818
11 F110325C00011000 3.54 0 4.05 4.1 22 533
12 F110325C00012000 2.63 0.25 3.05 3.1 41 454
13 F110325C00013000 1.76 0.39 2.05 2.09 28 2615
14 F110325C00014000 1.06 0.72 1.06 1.09 1344 3692
15 F110325C00015000 0.17 0.16 0.16 0.18 8400 14131
16 F110325C00016000 0.01 0 N/A 0.01 3 94
19 F110325C00019000 0.04 0 N/A 0.01 10 10
Put Options            
Strike Symbol Last Chg Bid Ask Vol Open Int
12 F110325P00012000 0.01 0 N/A 0.01 25 25
13 F110325P00013000 0.01 0 N/A 0.01 75 234
14 F110325P00014000 0.01 0.03 N/A 0.01 452 5172
15 F110325P00015000 0.12 0.53 0.1 0.11 5152 627
16 F110325P00016000 0.94 0.85 0.91 0.95 128 67

The first column is the strike or exercise price.  The second column provides a description of the option's symbol.  Today option symbols have undergone a change so that the symbol contains the relevant contractual information.  The underlying asset ticker, F, is provided first.  The settlement date is March 25, 2011, "C" indicates a call option, the next set of numbers contain the strike or exercise price. 

The option price is a quotation convention such that if you purchased one call option on Ford at its last traded price with a strike price equal to $12 as listed above, this call option controls 100 shares of Ford and the $ price you would pay is $2.63*100 = $263.

After you are comfortable with the reporting of the option price information, you can experiment with the subject in Option Tutor titled Option Payoffs to see how you can combine options to create a variety of future payoffs.  Notice that creating different payoffs costs different amounts, given the different option prices.  A major part of this text is concerned with valuation.  Next we provide an overview of the treatment of this problem in Option Valuation:  An Overview.