What Does It Mean to Have Optionable Stock?

A stock is said to be optional when the underlying stock of the stock exhibits the level of liquidity and volume required by the exchange-listed options to trade that stock. Before converting stocks into options, the exchange must meet some requirements. These requirements include, but are not limited to, the number of shares outstanding, a minimum share price, and a minimum number of sole owners.

Invest in stocks with options

A stock is considered optional if it can be traded on an exchange that offers stock options. Not all public companies have access to exchange-traded options. This is partly due to certain minimum conditions that must be met for the transaction to proceed, including a minimum share price and a minimum number of shares outstanding.

Optional shares can now be purchased from more than 5,000 different companies and hundreds of exchange-traded funds (ETFs). When stock is optional, it allows investors to buy options on the underlying asset, giving those investors the right to trade shares of the underlying security at a predetermined price.

When a stock has no options, it becomes more difficult to hedge holdings in that stock, making it harder to reduce the risk involved. This type of stock can be purchased through an over-the-counter options contract that can be arranged through a brokerage firm.

Nowadays, it is easy to research whether a particular stock has listed options on the internet. Checking the Cboe Options Exchange website to see if options are listed on a particular stock is the quickest and easiest way to determine if stock options are available.

Minimum Requirements for Optional Inventory

Before offering stock options, various requirements must be met. Before a company's stock options can be listed on a stock exchange, the company must first meet all five of the following basic conditions, as outlined in Cboe's current rules:

• The underlying stock must be traded on a recognized exchange such as NASDAQ, NYSE

 or AMEX. It can't be traded over the counter like on a bulletin board like the OTCBB or Pink List.

• The company's stock must have closed at the lowest price per share on most trading days in the preceding three calendar months to meet this requirement. The minimum fee is $3.00 per "covered security" and $7.50 per non-covered security.

• Pursuant to Section 16(a) of the Securities Exchange Act of 1934, non-reporting shareholders must hold at least 7 million shares of the underlying security.

• The company must have at least 2,000 individual investors.

• Over the past 12 months, at least 2.4 million shares have been exchanged across all markets where the underlying securities are traded.

Options exchanges such as Cboe will not allow options on underlying securities to be traded if the company in question does not meet one of the above conditions.