What are the options?
Options are investment vehicles that allow you to speculate on the future direction of an underlying asset. They are classified as either call or put contracts and can be based on various assets, such as stocks, indices, commodities, or currencies.
What are the listed options?
Listed options are options that are traded on exchanges. They have standardized expiration dates and strike prices, making them easier to trade than options contracts. Listed options are always European style.
When it comes to options and listed options, there is often confusion as to whether or not there is a difference between them. After all, they are both types of investment vehicles that allow you to speculate on the future direction of an underlying asset. Key distinctions set these two types of investments apart.
Critical differences between options and listed options:
Expiration date
One of the most notable differences between options and listed options is expiration. Options contracts typically expire within a few months, while listed options have a much longer shelf life. It’s because listed options are traded on exchanges and have standardized expiration dates.
Underlying asset
Another key difference between options and listed options is the underlying asset. Options contracts can be based on assets such as stocks, indices, commodities, or currencies. Listed options, however, are only based on stocks.
Ticker symbol
The ticker symbol for an option contract is typically three letters long, while the ticker symbol for a listed option is six letters long.
Asset type
Options contracts are classified as either call or put contracts, while listed options are classified as either bullish or bearish.
Strike price
The strike price is when the underlying asset must be bought or sold to execute the contract. Options contracts have fixed strike prices, while listed options have variable strike prices.
Premium
The premium is the price you pay to buy an option contract or sell a put contract. Options contracts typically have a higher premium than listed options.
Exercise style
There are two exercise styles for options contracts: American and European. American options can be exercised before expiration, while European options can only be exercised on the expiration date. Listed options are always European style.
Margin requirement
The margin requirement is the amount of cash you must deposit with your broker to enter into an option contract. Options contracts typically require a higher margin requirement than listed options.
Contract size
The contract size for an options contract is typically 100 shares of the underlying asset, while the contract size for a listed option is typically 1,000 shares.
Liquidity
Options contracts are less liquid than listed options. It means that it can be more challenging to find buyers or sellers when you want to enter into or exit an options position.
Trading hours
Options contracts can only be traded during regular trading hours, while listed options can be traded after hours.
Price limits
There are price limits on how high or low an option contract can trade in a single day. There are no such price limits on listed options.
Trading venue
Options contracts are traded over-the-counter (OTC), while listed options are traded on exchanges.
Clearinghouse
Options contracts are cleared by OCC, while listed options are cleared by the Depository Trust & Clearing Corporation (DTCC).
Regulation
Options contracts are regulated by the Securities and Exchange Commission (SEC), while listed options are regulated by the Commodity Futures Trading Commission (CFTC).
While there are some key differences between options and listed options, they are both types of investment vehicles that allow you to speculate on the future direction of an underlying asset.
In conclusion
Now that you know the differences between options trading and listed options, you can make a more informed decision as to which type of investment is right for you. If you’re looking for short-term speculation, then options contracts may be the way to go. But if you’re looking for a longer-term investment, then listed options may be a better choice.