If the last time you bought or sold American options was prior to 2010, the new symbology might come as a surprise.

Under the Option Symbology Initiative, a new protocol has been put in place to make options symbols simpler and more intuitive. The changeover to the new system began in late 2009 and was fully rolled out by May 2010.

All the basic components of an option are included in its symbol: the root symbol, the expiration date, the call/put indicator, and the strike price. Using these components, it is easy to describe any American equity option without having to look it up.

This guide will walk you through the new method so you can be up-to-date next time you want to buy or sell options. To help you understand the new system, let’s use the Apple October 2010 call option with a strike price of $290 as an example. Under the new protocol, the symbol is AAPL101016C00290000.

The string of letters and numbers may seem intimidating now, but once you see the rationale behind the symbol, you will appreciate its simplicity. Let’s start at the beginning.

Root Symbols

Before the updated methodology, the option root symbol was sometimes different from the stock ticker symbol. In some cases, depending on the option type and expiration date, there could be several variations of the root symbol. It was incredibly confusing for the average investor.

Now all you need to know is the root symbol is the same as the stock ticker symbol. In our Apple example, the root symbol is AAPL, the same as its stock ticker symbol.

Expiration Date

The 6 numbers following the root symbol is the expiration date.

The first two numbers indicate the year of expiration. note they use only the last two numbers of the year. For options expiring in 2010, the value is 10; for options expiring in 2011, the value is 11. In our example of Apple, the option symbol has grown to AAPL10.

Next comes the expiration month and day. As you might expect they use the standard numbers for months and calendar day, making it simple to understand.

Before we go further, we need to quickly address a common misconception about expiration dates. Many people believe options expire on the third Friday of the month, but this is technically incorrect. Most stock options expire on the third Saturday of the month, but they stop trading the day before. Some index options expire on a different day than stock options, so if you’re trading index options, double-check the expiration date.

By spelling out the month and date the option expires, the new methodology makes it easy to read the option’s expiration date at a glance. Our Apple option will expire on the third Saturday in October, so now the symbol is AAPL101016.

Call or Put Option

Now we need to know whether it is a call or a put option. In this case, the symbol is absolutely straightforward: C for a call option and P for a put option.

Our call option symbol has expanded to AAPL101016C.

Strike Price

The only thing missing now is the strike price. The last 8 digits of the option symbol describe the 5 digits before the decimal point and the two digits after the decimal point. It’s probably easier to illustrate with an example.

As mentioned before, the first 5 digits describe the number of whole dollars in the strike price. This brings up an interesting point; the new convention assumes that no stock option will trade at a strike price higher than $99,999 per share. Too bad for BRK-A.

Under the new symbology, a strike price of $20 reads as 00020 whereas a strike price of $500 reads as 00500.

The final three characters are the decimal portion of the strike price. An option with the strike price of $22.50 reads as 00022050.

Finally, returning to our Apple call option, the final symbol now reads AAPL101016C00290000.

Options can be a useful part of any individual’s investment strategy. For ideas on how to use options in your portfolio, check out these articles: Get Paid While You Wait for Solid Investments to Rebound and How to Use Protective Puts to Limit Losses.