Even though I don’t use Yahoo.com/finance to initiate trades, so far it is one of my favorite tools to quickly view an option chain. If you search for the term “TRI yahoo option chain” or “TRI option chain”, Yahoo will be one of the top 5 results. Or, you can go to Yahoo.com/finance and enter TRI into the search box, then click the options tab. Next, I much prefer the Straddle view as opposed to the default List view. The Straddle just gives the regular view that you expect to see with the Calls on the left and the Puts on the right. Get familiar with this view and what the terminology means. “In the money”, “out of the money”, “strike price”, and what the last price means, as well as the “bid/ask spread”. I have touched on all of these terms and added hyperlinks to Investopedia.com in past articles.
Here is an image of the option chain for TRI.
A superior option chain view is through Fidelity, which I use for brokerage and investing. You need to be able to login to view their research tools like option chains.
If we take a step back, and go to the List view, you will notice that this view includes the “implied volatility” on the right. You should Google Implied Volatility(IV) and Delta on your own time, and get a concept of how these numbers are calculations that represent the chances that the stock price will be at the strike price at the time the contract expires. I used to care about these numbers and follow the rule of signing contracts with an IV of ~30%, but, I have more recently just been looking at the strike price plus the premium compared with the cost basis of the stock (how much I spent per share). If the stock is sitting at 0-10%/20% and up, then I’m more likely to sign a contract that is “near the money”. The sooner I get out of the position, the sooner I can buy more back through an ESPP lump sum.
In summary, who cares about the intricacies of the options chain? You have only to concern yourself with common sense percentages of earnings and gains.
Example: Stock price is $44 per share. Option contract that expires in 30 days with a strike price of $45 has a “Last Price” of $0.62. 100 shares (1 contract) = $4,500 PLUS your premium of $0.62 X 100 = $62. You take $62 for committing to sell 100 shares at $45 per share. After commissions of about $5, you get an extra 1.26% on your money for signing this 30 day contract. I LOVE IT! Please take time to calculate your extrapolated earnings over the course of the year. Play the long game, and be patient. After you sign your contract at the strike price you are happy to sell it at, go for a hike. The only thing you are concerned with over the next 30 days is if the stock price plummets, at which time you can buy back the contract for pennies on the dollar. Rinse, repeat.
Thanks for reading! Please ask any questions via contact link or tweet @TheOptiontoSell.
–KEN
The Option to Sell 