Calculation and mechanics
For a standardised stock or ETF option, an option price of 2.50 USD with a multiplier of 100 corresponds to a cash amount of 250 USD per contract. For SPX options, one index point likewise equals 100 USD.
For futures options, the conversion depends on the underlying future and its price quotation. For the E-mini S&P 500, for example, 1.00 index point equals 50 USD per contract. WTI crude oil refers to 1000 barrels, so a price move of 1.00 USD per barrel equals 1000 USD per contract. Corn is quoted in US cents per bushel and with a contract size of 5000 bushels, 1 cent per bushel equals 50 USD per contract.
After corporate actions, existing option contracts can be adjusted. Strike, deliverable or other contract parameters can then change.
Cash value = option price x contract-specific value factor x number of contracts
Distinction
The multiplier or value factor is not the same as the total contract size or the notional value of the underlying. What matters is always the product-specific quotation.
For the sold premium and the max loss, the correct factor must therefore be used for every contract.
Sources
Related terms
- Assignment (Option assignment)
- Sold Premium (Short premium, sold option premiums)
- Max Loss (Maximum loss, option max loss)
- Expected Move (EM, one standard deviation move)
All market and analytical information is provided for educational and analytical purposes only and does not constitute investment advice or a trading recommendation.