Optionable Stock

What Is Optionable Stock?

An optionable stock is one where the shares have the essential liquidity and volume to such an extent that an exchange records that stock's options for trading. For a stock to be optionable, exchanges order that certain criteria be met, including a base share price, number of shares outstanding, and least unique shareholders, among others.

Figuring out Optionable Stocks

An optionable stock is one that has options listed and tradable on a market exchange. Not all companies that trade publicly on stock markets have exchange-traded options. This is due in part to certain base requirements that should be met, for example, a base share price and least amount of outstanding shares.

Currently, there are in excess of 5,000 companies with optionable stocks, as well as several hundred more exchange-traded funds (ETFs) with listed options. A stock being optionable permits investors to purchase options on the underlying stock, giving them the right to buy or sell shares of that underlying stock at a set price.

In the event that a stock isn't optionable, it is more challenging to hedge positions in that stock, which makes it harder to moderate the risks implied. For stocks like these, an investor can set up for a over-the-counter (OTC) options contract to be written with their broker-dealer.

It is very simple these days to gaze upward online in the event that a stock has listed options on it or not. The simplest method for checking whether a stock is optionable is to go to the Cboe Options Exchange website and check whether there are options listed for a particular stock.

Requirements for Stock to Be Optionable

To have options listed for a stock, it must meet certain criteria. Under current Cboe rules, there are five primary criteria that a company must meet before options on its stock can be traded on the options exchange:

1. The underlying equity security must be listed on a recognized exchange like the NYSE, AMEX, or Nasdaq. It can't trade over the counter, for example, on the pink sheets or a bulletin board, as over-the-counter-bulletin-board (OTCBB).
2. The closing price of the company's shares in the market must have a base per-share price for a majority of trading days during the three prior calendar months. The current least price is $3.00 per share for "covered securities" or $7.50 per share for non-covered securities.
3. There must exist at least 7,000,000 shares of the underlying security that are owned by persons other than those required to report their stock holdings under Section 16(a) of the Securities Exchange Act of 1934.
4. The company must have no less than 2,000 unique shareholders.
5. The trading volume (in all markets in which the underlying security is traded) has been, on average, no less than 2,400,000 shares in the previous 12 months.

On the off chance that a company meets no one of these criteria, options exchanges, similar to the Cboe, won't permit any options to be traded on the underlying security. Furthermore, in view of the subsequent condition listed over, a company can't have options traded on it until something like three months after its initial public offering (IPO) date.

Features

• Currently, there are in excess of 5,000 companies with optionable stocks, as well as several hundred more exchange-traded funds (ETFs) with listed options.
• In the event that a stock isn't optionable, it is more challenging to hedge positions in that stock, which makes it harder to moderate the risks implied.
• For a stock to be optionable, it must meet the base criteria laid out by exchanges.
• An optionable stock is one that has listed options on it accessible to trade.