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Ask the Institute

DATE: November 21, 2001

QUESTION:
Why are there two different LEAPS® for a stock with the same expiration and strike?
Also, what does the suffix after a quote signify?

ANSWER:
The suffix at the end of the symbol tells which exchange from which the quote is coming.

American Exchange: A
Chicago Board Options Exchange: E
International Securities Exchange: 8
Pacific Exchange: P
Philadelphia Exchange: X

As to your first question, adjustments may be made to some of the standardized terms of outstanding stock options when certain events occur, such as a stock dividend, stock distribution, etc. In the following discussion, taken from Characteristics and Risks of Standardized Options, there is a brief description of a number of general adjustment rules applicable to stock options that are in effect at the date of this booklet. Such rules may be changed from time to time with regulatory approval. An adjustment panel has the authority to make such exceptions as it determines to be appropriate to any of the general adjustment rules.

Because stock options are not generally adjusted for ordinary cash dividends and distributions, covered writers of calls are entitled to retain dividends and distributions earned on the underlying securities during the time prior to exercise. However, a call holder becomes entitled to the dividend if he/she exercises the option prior to the ex-dividend date even though the assigned writer may not be notified that he/she was assigned an exercise until after the ex-date. Because call holders may seek to "capture" an impending dividend by exercising, a call writer's chances of being assigned an exercise may increase as the ex-date for a dividend on the underlying security approaches.

As a general rule, stock dividends, stock distributions and stock splits can result in an adjustment in the number of underlying shares or the exercise price, or both.

For more information about this topic, visit the following URL:
http://www.cboe.com/Resources/OptOnEquitySecurities.asp


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