Key Takeaways
- Groups all calls or puts on one underlying asset.
- Contracts share type, style, and contract size.
- Separates calls and puts into distinct classes.
What is Option Class?
An option class groups all call options or all put options on the same underlying asset that share identical contract terms such as exercise style and contract size. It organizes options by type—calls or puts—on a single security, excluding variations in strike prices or expiration dates.
This classification helps traders analyze market sentiment and liquidity by examining aggregated activity within a class, separate from individual option series.
Key Characteristics
Option classes standardize option contracts by grouping them based on key attributes:
- Option Type: All contracts in a class are either calls or puts, never mixed.
- Underlying Asset: The same security, such as Apple stock, defines the class.
- Exercise Style: Contracts share the same exercise rules, e.g., American or European style.
- Contract Size: Typically 100 shares per contract for equity options.
- Market Organization: Exchanges list option classes prominently to facilitate trading and analysis.
How It Works
Option classes serve as the umbrella grouping for all option contracts of the same type on one underlying security. Within each class, individual option series differ by strike price and expiration date.
For example, the call class on Google stock includes all American-style call options with various strikes and expirations. Traders monitor volumes and premiums within a class to assess market sentiment, such as bullishness indicated by high call demand.
Examples and Use Cases
Option classes are widely used in trading strategies and market analysis:
- Technology Stocks: The option classes for Apple and Google enable investors to execute complex spreads across strikes and expirations within the same class.
- Electric Vehicles: Tesla call and put classes allow traders to speculate on price movements or hedge stock positions effectively.
- Risk Management: Understanding the option class structure helps manage exposure to naked call risks or obligations associated with selling options.
Important Considerations
When dealing with option classes, it’s crucial to recognize that calls and puts are separate classes even if they share the same underlying asset, strike, and expiration. This distinction affects pricing and strategy selection.
Additionally, the exercise style impacts your rights and potential actions, such as early exercise for American options. Make sure to evaluate liquidity within the class and understand your obligation if writing options.
Final Words
Option classes group call or put contracts on the same asset with identical terms, simplifying market analysis and trade decisions. To deepen your strategy, compare option classes across underlying assets to identify where market sentiment and volatility align with your goals.
Frequently Asked Questions
An option class groups all call options or all put options on the same underlying asset that share identical contract size and exercise style. It helps traders organize and analyze options by separating calls and puts on a specific security.
Option classes are always separated by type, meaning all call options form one class and all put options form another, even if they have the same strike prices or expiration dates. Calls and puts on the same asset never mix within a class.
An option class is defined by having the same option type (call or put), the same underlying asset, the same exercise style (American or European), and the same contract size, which is typically 100 shares for equity options.
Option classes standardize how options are listed on exchanges, making it easier for traders to analyze market trends and sentiment. For example, a high volume in call classes may indicate bullish expectations, while puts may signal bearish views.
An option class includes all call or put options on an underlying asset with the same style and contract size, while option series are subsets within that class distinguished by specific strike prices and expiration dates.
For Tesla stock, the TSLA call class includes all American-style call options covering 100 shares, such as $240 strike expiring in February 2026 or $260 strike expiring in March 2026. Each of these is a different series within the call class.
An option is 'in the money' if exercising it would be profitable. For calls, this means the strike price is below the current market price of the underlying asset, while for puts, the strike price is above the market price.
