Options, explained
An option is a financial derivative contract that gives the holder the right to buy (a call) or sell (a put) a given security at a specified price (the strike price, or exercise price) on or before a specified date (the expiration date).
For example, on January 14, 2014, JPMorgan Chase (JPM) common stock traded at $57.74. That same day, a call option to buy one share of JPM at $57.50, expiring January 18, 2014, cost $0.48 — that is, you'd pay $0.48 for the right to buy the stock four days later at a price just below where it was then trading. For that same expiration date:
A call at a $50 strike price cost $7.70
A put at the $57.50 strike price cost $0.23
A put at a $65 strike price cost $7.00
Pricing basics: A call is more valuable when the strike price is below the current market price; a put is more valuable when the strike price is above the current market price. A call is in the money when the share price exceeds the strike price, and out of the money when it doesn't. A put is the reverse: it's in the money when the share price is below the strike price, and out of the money when it's above.
American vs. European: An American option can be exercised any time up to expiration; a European option can be exercised only on the expiration date itself.
Key terms:
Put: the right to sell at a given price by a given date
Call: the right to buy at a given price by a given date
Expiration date: the date after which the option is no longer valid
Strike price: the price at which the option can be exercised
Because strike prices and expiration dates vary, many options on the same security can trade at once. On January 14, 2014, for instance, JPM puts and calls were trading with expiration dates ranging from January 18, 2014 to January 15, 2016, and strike prices from $18.00 to $110.00.
The code used to identify an option in a database typically encodes all four of these elements.
Where to find option prices
OptionMetrics via WRDS:
Provides historical price and implied volatility data for the U.S. equity and index options markets, on an option by option basis.
Date range: 1996 - Current Year-1year (data added manually).
IN WRRDS, select Option Metrics,click on "Option Prices."
Date range: last 90 days, no historical data
Date range: varies by option, historical data varies by option.
Open Excel and select the Refinitiv tab.
From the Refinitiv menu, select Datastream Formula. This will open the Datastream Formula Builder.
Under Category select Options from the drop-down list.
Select the funnel icon (find series) beside the Explorer window to launch Datastream Navigator.
Use left-hand menu to select criteria such as Exchange, Type, Region, Excercise Price, etc
Select your option by clicking on the symbol (color blue).
When you select your option it will automatically insert it into Series/Lists section of Datastream Formula Builder.
Select Insert to download the data into Excel.
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