Does it take $2.40 to buy an option priced at $2.40 or does it take $240.00 to buy an option priced at $2.40?

  • This is impossible to answer without a lot more specifics. A covered put would require a lot more cash then a non-covered put. Knowledge of commission schedule and bid-ask spread would also be required. – Pete B. May 28 at 12:20
  • I think he asks whether an option purchase covers 1 or 100 options. I.e. whether he has to multiply the price by the number of shares. – TomTom May 28 at 12:31
  • @PeteB. When buying options covered and naked are not a consideration, only the premium is relevant. – Hart CO May 28 at 13:46
  • Typically the listed price is per share and the option is for 100 shares, but not universally the case. – Hart CO May 28 at 13:49
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    @PeteB - The question makes no mention of buying or selling the underlying. The commission schedule is also irrelevant. – Bob Baerker May 28 at 13:57

Option are generally traded in packs of 100, but there might be exceptions.

So if the price is listed as 2.40, you will pay 240.00 for one pack of a 100, which allows you execute on 100 shares if you want to.
It is a bit confusing for beginners, as you enter '1' but really you are buying 100.

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    Your description may confuse a noob. Options are not "traded in packs of 100". When you buy an option, you buy ONE contract. A standard option gives you the right to buy (or sell) 100 shares of the underlying. – Bob Baerker May 28 at 14:09
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    Which is another wording for 'a contract contains 100 options for one share each'. I find the explanation with known words actually easier to understand than introducing a new terms to explain it. Yes, '100 options' are called a 'contract', but that only helps you when you got it already. – Aganju May 28 at 21:15
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    @aganju but what you're saying is factually false. It is not 100 contracts of 1 unit of underlying but rather 1 contract of 100 units of underlying. – ApplePie May 28 at 21:58
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    @aganju - Unless you are from a country other than the USA where your description is the common usage, you're description is incorrect. The proper terminology is that you buy one contract which gives you the right to buy (or sell) 100 shares of the underlying, depending on whether it is a put or a call. There is no such usage as you described in the USA. – Bob Baerker May 29 at 14:45

Traditional exchange traded options are for 100 shares. The multiplier is 100 which means that one point equals $100. Therefore, a premium of $2.40 will cost $240 plus commission (if any) to buy one contract.

The exception to this is adjusted options where the terms of the contract have been changed due to a corporate event such as a merger, special dividend, forward or reverse split, etc.

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    The multiplier doesn't have a unit, other wise it would cost 240 squared dollars. – ApplePie May 28 at 15:21
  • @Apple Pie - I have no idea what your comment about 240 squared dollars means. Standard option contracts have a multiplier of 100. The most common multiplier adjustment is for fractional stock splits (3:2, 5:3, etc.) and then, the multiplier decreases. It can increase if there is a stock dividend. Futures have a multiplier of 250 and 50 for the e-mini. – Bob Baerker May 28 at 17:55
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    Your post answer says the multiplier is 100$. If the multiplier is 100$ and the option price is 2.40$ then the price paid is 240.0 $ squared which is nonsensical obviously. – ApplePie May 28 at 18:03
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    You're quibbling over a dollar sign rather than that the answer is Therefore, a premium of $2.40 will cost $240 plus commission (if any) to buy one contract ??? – Bob Baerker May 28 at 18:08
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    this was simply meant as a suggestion of typography improvement, I'm not disagreeing with your answer. – ApplePie May 28 at 18:43

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