| 13 November 2009

Entire courses have been developed to teach new investors how to decipher the world of options symbols. Heck, we've developed guides that help even experienced investors understand a chain sheet. So it should come as no surprise that the Options Clearing Corporation (OCC) has been working on a project to change the way we decipher options.

Say goodbye to, "IBMER," say hello to, "IBM May 2006 90 call." We likey.

The Options Symbology Initiative was introduced by the OCC last year. The organization has been quietly testing changes with the exchanges this past summer. The plan is to roll with the new changes in early to mid-2010, but it is not without controversy. (Apparently what's good for the customer is bad for the company.)

The change has some wondering whether the OCC has created a Y2010 version of the old Y2K problem. The new symbols are 21 characters long, or 16 characters longer than the current system. Some of the larger brokers operate upwards of 40 different internal systems that must be changed to accommodate the new symbols, and this comes at great cost. TD Ameritrade (AMTD), among others, sent letters to the OCC to complain about the cost of the changes.

But it's time for a change and the OCC knows it. When the original options symbology was introduced 25 years ago it was rare that an individual investor actually had any access to trade options directly. Most investors worked through brokers who, in essence, translated orders into the code required to execute the trade. Also since that time a myriad of new options products have been introduced that are not accommodated by the symbology, such as LEAPs and FLEX contacts.

Some brokers, such as Charles Schwab (SCHW), have started communicating the changes to their retail customers as well as to their RIAs. Fidelity also offers a brief explanation. Interactive Bokers (IBKR) offers a brief guide.

We particularly like the effort by optionsXpress (OXPS) to explain the initiative to their clients. We are surprised, however, that the initiative isn't getting more attention and that it is, quite frankly, being overlooked by many other brokers.