What Is an Optionable Stock?
Key takeaways
– An optionable stock is a publicly traded equity for which exchange-listed options exist and can be traded.
– Not every public company is optionable; exchanges require a set of criteria (liquidity, share price, public float/holders, time since IPO, etc.) before listing options on a security.
– There are currently thousands of optionable stocks and hundreds of ETFs with listed options, which makes options-based hedging and strategies broadly available for many investors.
– If a security is not optionable, investors can (a) use OTC options arranged through a broker‑dealer, (b) hedge with correlated optionable securities (e.g., an ETF), or (c use other non‑options hedges.
Understanding optionable stocks
– Definition: A stock is “optionable” when options exchanges have approved and listed options contracts on that stock’s shares. That means standard exchange-traded options (puts and calls with standardized strikes and expirations) are available to buy and sell on regulated options markets.
– Why it matters: Listed options provide standardized, liquid ways to gain leverage, express directional views, or hedge equity positions. If a stock is optionable, retail and institutional investors can access these tools on public exchanges with transparent pricing and centralized clearing.
– Scope: Thousands of companies and several hundred exchange‑traded funds (ETFs) have listed options, making option strategies broadly accessible across sectors and market caps (see market listings data).
Requirements for a stock to be optionable
– Exchanges set listing criteria. The Chicago Board Options Exchange (Cboe) and other options exchanges require a security to meet minimum standards before listing options. Typical categories of requirement include:
– Minimum time since IPO (commonly a floor period, e.g., several months, so there is a trading history).
– Minimum share price or bid price threshold.
– Minimum number of shares outstanding and/or public float.
– Minimum number of round‑lot shareholders (to demonstrate a distributed shareholder base).
– Minimum market interest, liquidity, and trading volume.
– Exact thresholds and the full list of criteria are set out in each exchange’s rules and can change; consult the exchange rulebook (for example, Cboe’s listing rules) for the current, detailed standards and numeric thresholds.
– Consequence: If a company fails to meet any required condition, an exchange will not list options on that security.
Practical steps — how investors can check if a stock is optionable
1. Check an options exchange list
– Visit an options exchange website (e.g., Cboe) and search for the ticker to see whether options are listed.
2. Use your brokerage platform
– Enter the ticker and open the “option chain” or “options” tab. If an option chain is shown, the stock is optionable on that platform.
3. Use financial-data sites
– Sites such as Barchart, Optionistics, or mainstream market data providers list optionable securities by sector or ticker and indicate if options exist.
4. Verify liquidity metrics before trading
– If optionable, check open interest and average daily volume in the options series you plan to trade—low open interest and volume can make execution expensive and spreads wide.
5. Confirm margin/approval with your broker
– Some brokers require specific options-trading approvals or higher account levels before allowing certain strategies (spreads, uncovered writes, etc.).
Practical steps — what to do if a stock is not optionable
1. Consider an OTC option via a broker‑dealer
– For large or institutional needs, a broker‑dealer can arrange an over‑the‑counter (OTC) options contract customized to your needs. OTC options carry counterparty and customization considerations.
2. Use options on a proxy or correlated instrument
– Hedge using options on a highly correlated ETF, sector index, or a large-cap peer with listed options.
3. Use other hedging tools
– Futures (if available), pairs trades, inverse ETFs, stop orders, or simply reducing position size to manage risk.
4. Engage with market makers or the company
– In some cases, market makers or the issuer can request exchange listing of options; only the exchange’s rules determine approval.
How to trade options on an optionable stock (practical workflow)
1. Educate and plan
– Understand payoffs, Greeks, assignment risk (for American options), and transaction costs. Decide the objective: hedge, income, leverage, or speculation.
2. Check option chain liquidity and strikes/expirations
– Prefer options with narrow bid-ask spreads and meaningful open interest. Choose expirations and strikes aligned with your time horizon and risk tolerance.
3. Ensure broker approvals and margin capacity
– Confirm your account is approved for the strategy you intend to use (e.g., covered calls vs. uncovered naked options).
4. Execute, monitor, and manage
– Use limit orders when possible, monitor position Greeks and news, and have an exit plan (roll, close, or exercise).
5. Account for costs and taxes
– Factor in commissions, spreads, assignment fees, and tax treatment—options can have different tax implications than stocks.
Risks and considerations
– Liquidity risk: Some option series are thinly traded, which increases transaction costs and execution risk.
– Assignment and exercise: American-style options can be exercised before expiration; short option positions carry assignment risk.
– Complexity: Options introduce leverage and non‑linear payoffs; strategies should match investor sophistication and risk tolerance.
– Regulatory and rule changes: Listing criteria and rules can change; always consult exchange sources for the latest requirements.
Fast fact
– There are thousands of stocks (and hundreds of ETFs) with listed options, making exchange-traded option strategies widely available for many investors—data providers and exchanges keep updated counts of optionable securities.
Sources and further reading
– Investopedia — Optionable Stock (overview and context): https://www.investopedia.com/terms/o/optionablestock.asp
– Cboe — Cboe Options Exchanges and Cboe Rules (for current listing criteria and details): https://www.cboe.com and see Cboe Exchange rulebook (listing standards).
– Barchart — Optionable Stocks by Sector (data on optionable securities): https://www.barchart.com
Disclaimer
This article is educational and not investment, tax, or legal advice. Confirm current listing rules with exchanges and consult your broker or financial advisor before trading options.