January 25, 2010 / 7:22 PM / 9 years ago

Options trading to simplify with new symbols: OCC

* Revamp of options symbols long anticipated

* Initiative will “bring clarity” to options market

* Some firms already OSI-compliant

By Angela Moon and Doris Frankel

NEW YORK/CHICAGO, Jan 25 (Reuters) - The U.S. options industry next month is set to overhaul the way options ticker symbols are displayed in order to catch up to the phenomenal growth of the market in recent years.

The makeover will transform the antiquated and sometimes confusing alphabetical codes used to identify an option into a format that many say will make it easier for investors to understand.

“The main goal is to bring clarity in what the option symbols actually represent through a coded description on what the underlying equity, its strike price and expiration represent in plain English,” said Andy Nybo, head of derivatives at research and advisory firm TABB Group.

The plan, dubbed the Options Symbology Initiative (OSI), is coordinated by the Options Clearing Corp, the world’s largest clearing organization.

Most firms have already made changes to support the mandatory conversion, set for Feb. 12, according to the OCC.

Much of the groundwork for the plan has been completed after months of testing and nearly five years of work by the OCC, along with input from U.S. options exchanges, brokerage firms and market data vendors.

The initiative will also remove limits on the creation of new products with various strike prices and expiration dates, potentially opening the door for more growth.

“We will have an options infrastructure by which clients communicate with exchanges, and exchanges communicate with the OCC in a consistent, updated messaging platform that will allow for future expansion of the options product,” said David Harrison, vice president of member services at OCC, and the point person on the OSI project.

NEW LOOK

The new, 21-character code will be displayed in the order of four key components — underlying symbol, expiration date, option type, meaning put or call, and strike price. This is expected to improve the outdated three-to-five letter codes, which bear little resemblance to the underlying stock symbol.

“The new codes will be much more decipherable for everyone from the back office clerk to the retail customer,” said Mark Longo, chief executive of the optionsinsider.com, an options information website.

For example, an Apple Inc (AAPL.O) call option that would have expired in December 2007 at a $122.50 strike price would now be displayed as AAPL 07 12 22 C 122.5 instead of APVLZ.

As U.S. option volume bloomed with seven straight years of record growth, new types of derivative products came on-line to help investors manage their portfolio risk and generate income.

The growth in the number of listed companies, along with trading volume, has also resulted in an explosion in the number of options series that are traded. It is common for the different strike prices for puts and calls of an actively traded stock to number in the hundreds, Nybo said. (Editing by Padraic Cassidy)

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