Optionable Stock

Amsterdam Stock Exchange (AEX) .AS Definition

What is an optional stock?

An optional stock is one where the stock has the necessary liquidity so that a market maker, such as a bank or an accredited financial institution, lists the options for that stock for trading.

Key points to remember

  • An optional stock is one where the stock has the necessary liquidity so that a market maker, such as a bank or an accredited financial institution, lists the options for that stock for trading.
  • Currently, there are over 5,000 companies with optional shares, as well as several hundred other exchange traded funds (ETFs) with listed options.
  • If an action is not optional, it is more difficult to hedge its positions, which makes it more difficult to mitigate the risks involved.

Understanding optional actions

An optional stock is one that has options listed and tradable on an exchange market. Not all publicly traded companies have publicly traded options. This is due in part to certain minimum requirements that must be met, such as a minimum share price and a minimum number of shares outstanding.

Currently, there are over 5,000 companies with optional shares, as well as several hundred other exchange traded funds (ETFs) with listed options. An optional security allows investors to buy options on the underlying security, giving them the right to buy or sell shares of that underlying security at a fixed price.

If an action is not optional, it is more difficult to hedge its positions, which makes it more difficult to mitigate the risks involved. For stocks like these, an investor can enter into an over-the-counter option contract (OTC) with their broker. It is quite easy these days to research online whether a stock has listed options or not. The easiest way to check if an action is optional is to go to the Chicago Board Options Exchange (CBOE) website and check if there are options listed for a particular action.

Minimum criteria for an optional title

In order to have options listed for a stock, it must meet certain criteria. Under current CBOE rules, a company must meet five main criteria before it can trade options on its shares on the options exchange:

  1. The underlying equity security must be listed on a recognized stock exchange such as the NYSE, AMEX or NASDAQ. He cannot trade over the counter, such as on pink sheets or a bulletin board, such as the over-the-counter bulletin board (OTCBB).
  2. The closing price of the company’s shares on the market must have a minimum price per share during the majority of trading days during the three preceding calendar months. The current minimum price is $ 3.00 per share for “hedged securities” or $ 7.50 per share for unhedged securities.
  3. There must be at least 7,000,000 shares of the underlying security owned by persons other than those required to report their assets under section 16 (a) of the Securities Exchange Act of 1934.
  4. The company must have at least 2,000 unique shareholders.
  5. The volume of transactions (in all the markets in which the underlying security is traded) has been, on average, at least 2,400,000 shares in the previous twelve months.

If a company does not meet any of these criteria, trading options, such as the CBOE, will not allow options trading on the underlying security. In addition, due to the second condition listed above, a company cannot have options traded on it for at least three months after the date of its IPO.

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