Optionable Stock
Candlefocus EditorIn order to qualify as optionable, a stock must meet multiple criteria. Typically, it must have sufficient liquidity such that there is a sufficient number of buyers and sellers to trade the shares without significantly swaying the price. Additionally, it must have a price that is more than the exercise price of the option contract. Additionally, publicly disclosed information must be available about the particular stock and the exchange must meet basic legal requirements.
Optionable stocks enable investors to hedge their exposure to market fluctuations or to gain leverage when trading. When an investor has an optionable stock and a robust call option on the same stock, the investor is essentially able to create a hedge against potential losses due to market movements. This also allows the investor to gain leverage when utilizing the same call option, since the call option allows the investor to increase their potential exposure to the particular stock’s price movements with a smaller investment.
More than 5,000 publically traded companies and ETFs have optionable stocks, providing investors with wide range of options to gain exposure or hedge the risks associated with investing in stocks. Investing in optionable stocks allows investors to benefit from the favorable market conditions while limiting exposure to unfavorable market risks.