logo
  Join        Login             Stock Quote

Understanding Option Prices

 August 08, 2007 11:05 PM


 

Option premiums or prices can be a little difficult to understand at first. But after a little bit of practice on your part, you'll soon get the hang of it. Remember that the strike price of an option is not its price. Rather, the strike price, along with other features such as option expiration, determine the price of an option. Option premiums are typically quoted in units as defined by the underlying futures contract. While these values may look like dollar amounts, they are not. The proper way to calculate the dollar value of an option is to multiply the option price by the size of the contract. The contract size is set by the exchange on which the option trades and may change.

To help you along, we have provided below sample prices of commonly traded options and the calculation of their dollar values or prices. Note that these option prices are not meant to reflect actual market prices at any given time. Use values only as a guide for the calculation.

Option Example of Option Complete Option Contract Value of
Contract Price Units Price Size Option
 (A) (B) (A) x (B)
Canadian dollar(IMM) 0.46 cents per CD $.0046/CD 100,000 CD $460 
Feeder Cattle(CME) 1.55 cents per pound $.0155/lb 50,000 lbs $775 
Live Cattle(CME) 1.78 cents per pound $.0178/lb 40,000 lbs $712 
Cocoa(CSCE) 45 $ per ton $45/ton 10 tons $450 
Corn(CBOT) 16 3/4 cents per bushel $.1675/bu 5,000 bu $837.50 
Cotton(NYCE) 1.87 cents per pound $.0187/lb 50,000 lbs $935 
Crude oil(NYMEX) 0.86 $ per barrel $.86/bbl 1,000 barrels $860 
DJIA(CBOT) 5620 points 562.0 points $10 per point $5,620 
Eurodollar(IMM) 0.185 pts. of 100% 18.5 basis pts $25 per basis pt $462.50 
Gasoline(NYMEX) 0.0147 $ per gallon $.0147/gal 42,000 gal $617.40 
Gold(COMEX) 4.65 $ per ounce $4.65/ounce 100 ounces $465 
Heating oil(NYMEX) 0.0258 $ per gallon $.0258/gal 42,000 gal $1,083.60 
Hogs(CME) 1.22 cents per pound $.0122/lb 40,000 lbs $488 
Natural gas(NYMEX) 0.152 $ per MMBtu $.152/MMBtu 10,000 MMBtu $1,520 
NYSE Index(NYCE) 1.65 Points 1.65 pts $500 per point $825 
Orange juice(NYCE) 4.25 cents per pound $.0425/lb 15,000 lbs $637.50 
Pork bellies(CME) 1.35 cents per pound $.0135/lb 40,000 lbs $540 
S & P 500(CME) 27.50 points 27.50 points $250 per point $6,875 
E-Mini(CME) 27.50 points 27.50 points $50 per point $1,375 
Silver(COMEX) 6.8 cents per ounce $.068/ounce 5,000 ounces $340 
Soybean oil(CBOT) 0.93 cents per pound $.0093/lb 60,000 lbs $558 
Soybeans(CBOT) 16 1/2 cents per bushel $.165/bu 5,000 bu $825 
Sugar(CSCE) 0.35 cents per pound $.0035/lb 112,000 lbs $392 
U.S. bonds(CBOT) 1-56 pts and 64th of a point 1 56/64 pts $1,000 per point $1,875 
USDX(NYCE) 0.77 points 0.77 points $1,000 per point $770 
Wheat(CBOT) 13 5/8 cents per bushel $.13625/bu 5,000 bu $681.25


Which Option to Buy? How Options are Treated in the Account Statement
iOnTheMarket Premium
Advertisement

Advertisement


Comments Closed


rss feed

Latest Stories

article imageFord Motor Company (F): A long Road to Deutsche Bank’s $19 Target

Ford Motor Company (NYSE:F) is going the right way on a one way street where most everybody else is driving read on...

article imageCitigroup Inc (C) Q1 Earnings Preview: Too Many Parts Heading South

Citigroup Inc (NYSE:C) will issue its first quarter results via press release at approximately 8 a.m. (ET) read on...

article imageFacebook Inc (FB): You Might Not Like It Today, But You’ll Like It Tomorrow

Do you honestly want to invest in stocks right now? It sure looks like the bull market is at least on read on...

article imageJPMorgan Chase & Co. (JPM) Q1 Earnings Preview: Regulation Costs To Trim Guidance?

JPMorgan Chase & Co. (NYSE:JPM) will host a conference call to review first quarter 2014 financial results read on...

Advertisement
Popular Articles

Advertisement
Daily Sector Scan
Partner Center

Related Articles:

Has inflation in the US bottomed out?
More Articles on: Learning Curve



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.