A standardized agreement giving the holder the right to buy (call) or sell (put) 100 shares of the underlying at the strike price before or at expiration.
⚡ KEY TAKEAWAY: One contract = 100 shares. Always multiply quoted prices by 100 to get the real dollar amount.
Why It Matters
The contract is the fundamental unit of options trading. Understanding that one contract = 100 shares prevents costly sizing mistakes. A $5 option costs $500 per contract, not $5.
How It Works
Each contract specifies: underlying, strike price, expiration date, option type (call/put), and contract size (standard = 100 shares). The OCC standardizes and guarantees all listed option contracts.
Example
Buy 3 AAPL $200 calls at $4.50. Total cost: 3 × $4.50 × 100 = $1,350. You control 300 shares of exposure. If AAPL goes to $210, each contract gains $10 × 100 = $1,000.
Common Mistakes
Forgetting the 100 multiplier. Selling 10 contracts of a $3 put looks like $30 — it's actually $3,000 of premium and potentially $100,000+ of assignment obligation.
A standardized agreement giving the holder the right to buy (call) or sell (put) 100 shares of the underlying at the strike price before or at expiration.
Why does Option Contract matter for premium sellers?
One contract = 100 shares. Always multiply quoted prices by 100 to get the real dollar amount.
How does Option Contract work?
Each contract specifies: underlying, strike price, expiration date, option type (call/put), and contract size (standard = 100 shares). The OCC standardizes and guarantees all listed option contracts.
What are common mistakes with Option Contract?
Forgetting the 100 multiplier. Selling 10 contracts of a $3 put looks like $30 — it's actually $3,000 of premium and potentially $100,000+ of assignment obligation.
