Reading option prices takes a bit of getting used to, but even beginners find that it doesn’t take long to catch on to what they are seeing. Without being able to read option prices accurately, option traders might not clearly understand what they are getting into, or how much money they might put at risk.

This part of the beginners’ guide will help you get a basic understanding of how to read option prices from a broker’s quote screen. Keep in mind that the illustrated examples are hypothetical prices only. Option prices are usually displayed in a format that looks something like this.

This is what is known as an option chain. It is a table of prices that organizes options by strike price and expiration date so buyers can locate the exact option they need. It is important to understand that the data in the option chain is interrelated. Let’s walk through each of the six most important elements an option buyer would need to know.

Number 1: The current stock price
This price fluctuates as the stock price rises and falls. On broker’s platforms, the option prices will change in real time as they adjust to any changes in the stock price. It is important to understand that the option prices you are looking at in the option chain are always based on the last published price of the stock.

Number 2: The expiration date of these options
Brokers platforms will show a separate table of option prices for each available expiration date that options are offered. New groups of options with a new expiration date are created as previous groups expire.

Number 3: The option type (whether call or put)

Calls give the right to buy, puts the right to sell. Calls are always listed on the left side of the table and puts are always listed on the right. 

Number 4: The strike price of each available option
This is the price where an option buyer has the chance to own shares, through a call option, or sell them short, through a put option.
The more heavily traded a stock is, the greater the number of different strike prices that are likely to be available for option traders.

Number 5: The bid and ask prices for each option
When a trader wants to buy an option, they look at these prices. The example here is the 100 strike price, and if a trader wanted to buy that option, they would usually have to pay the ask price. In this example the price is 5.00 dollars per share. Since option contracts usually include 100 shares of the stock, the price for this option is $500. If the buyer wanted to sell the option immediately after buying it, they would need to accept the bid price. In this example that price is $4.90, so buying the option at $5.00 dollars and selling it at $4.90 represents a ten-cent transaction cost. When those ten cents are multiplied by one hundred shares, it amounts to a difference of ten dollars. This transaction cost is in addition to any commissions the broker might charge.

Number six: The Strike price closest to the current price of the stock

In this example, the $100 dollar  strike price is the closest to the last traded stock price. This particular option is referred to as being “AT the money.” Option traders look for the At-the-money option when they want the most EFFICIENT balance between cost and leverage. 

Reading option prices takes a bit of getting used to, but even beginners find that it doesn’t take long to catch on to what they are seeing. Without being able to read option prices accurately, option traders might not clearly understand what they are getting into, or how much money they might put at risk.

This part of the beginners’ guide will help you get a basic understanding of how to read option prices from a broker’s quote screen. Keep in mind that the illustrated examples are hypothetical prices only. Option prices are usually displayed in a format that looks something like this.

This is what is known as an option chain. It is a table of prices that organizes options by strike price and expiration date so buyers can locate the exact option they need. It is important to understand that the data in the option chain is interrelated. Let’s walk through each of the six most important elements an option buyer would need to know.

Number 1: The current stock price
This price fluctuates as the stock price rises and falls. On broker’s platforms, the option prices will change in real time as they adjust to any changes in the stock price. It is important to understand that the option prices you are looking at in the option chain are always based on the last published price of the stock.

Number 2: The expiration date of these options
Brokers platforms will show a separate table of option prices for each available expiration date that options are offered. New groups of options with a new expiration date are created as previous groups expire.

Number 3: The option type (whether call or put)

Calls give the right to buy, puts the right to sell. Calls are always listed on the left side of the table and puts are always listed on the right. 

Number 4: The strike price of each available option
This is the price where an option buyer has the chance to own shares, through a call option, or sell them short, through a put option.
The more heavily traded a stock is, the greater the number of different strike prices that are likely to be available for option traders.

Number 5: The bid and ask prices for each option
When a trader wants to buy an option, they look at these prices. The example here is the 100 strike price, and if a trader wanted to buy that option, they would usually have to pay the ask price. In this example the price is 5.00 dollars per share. Since option contracts usually include 100 shares of the stock, the price for this option is $500. If the buyer wanted to sell the option immediately after buying it, they would need to accept the bid price. In this example that price is $4.90, so buying the option at $5.00 dollars and selling it at $4.90 represents a ten-cent transaction cost. When those ten cents are multiplied by one hundred shares, it amounts to a difference of ten dollars. This transaction cost is in addition to any commissions the broker might charge.

Number six: The Strike price closest to the current price of the stock

In this example, the $100 dollar  strike price is the closest to the last traded stock price. This particular option is referred to as being “AT the money.” Option traders look for the At-the-money option when they want the most EFFICIENT balance between cost and leverage.