Options Trading Contract Size

The biggest characteristic of a stock market is that it is volatile. This means, the share prices of the companies registered on the exchange keeps exchanging every second. This change is dependent on the application for the stock, I.e., a sum of buys and sells. It is risky, as a result. This is called the cash segment or spot market.

Options may be the most lucrative type of investment you’ll ever find. Just a small option investment can turn into massive gains. Why? Because each option contract controls the profit potential of an investment many times the size of the actual amount you have at risk. Options have been around since ancient times. Merchants would pay a small amount of capital on anticipated crops or ocean-bound cargo. When the crop was harvested or the shipment arrived, the merchant had the first …

There is another platform for trading called the derivatives segment. Here you trade stock futures and options.

To change direction..

There are two kinds of derivative contracts – futures and options. This is the same for dealing in shares, currencies or commodities derivatives. Futures and options are more or less similar. The only difference is that those trading in options aren’t obligated to actually buy or sell at the said date. You may decide to rescind the agreement before the final date.

Kept this is beneficial because along with reduced risk and better predictability, traders have the same advantages they find when they use futures and options as trading vehicles. Margin percentages generally run in the 5 to 7 per cent range, so that high leverage is still available. This makes it comparable to other commodities futures and options contracts.

Options trading contract size

While buying a contract, you only pay a line of the total value of the deal. For example, if you buy 10 contracts of Nifty 50 April futures with a value of 5000, and if the margin is 5 %, then you do not have to pay Rs 50, 000, but just Rs 2, 500.

Beginning Oct. 21, CME said it will reduce the minimum ‘tick’ size to $1 for two natural gas ‘penultimate’ futures contracts, or contracts that settle the day before the CME’s benchmark front-month New York Mercantile Exchange Henry Hub natural gas futures contract expires. The two natural gas futures contracts, the ‘NP’ and ‘HP’ are being adjusted to match the value of CME’s European options contract on the underlying Henry Hub contract. The NP contract is for 2,500 million British thermal units …

The most common use of derivatives trading is to safeguard from potential losses in the cash segment. Suppose, you buy a stock expecting it to rise by Rs 100 in three months, but you’re not sure of its success, then you bought a contract in the derivatives market which agrees to sell the stock after three months. Hedging is primarily used by importers and exporters in the currency derivatives segment. Many stock traders, however, use the derivatives segment for arbitrage, I.e., to make more profits.

FAQ’s: What is a nonstandard option contract size?
GG seems to have a lot of option contracts that are nonstandard. TDAmeritrade states the contract size is 169 shares (not the standard 100). What does this mean when I sell to open a covered call? What does it mean if I get called out?

  • Options contracts are always adjusted after a major reorg such as a buyout, merger, reverse split, ratio split with spinoff, etc. These adjustments are always highly individual, respecting the terms of the memorandum or offer that governed the reorg. The "old" option contracts prior to the reorg will be given new symbols and the deliverable for each contract, also called the underlying, will change. Details of each adjustment can be found at www.888options.com. Click on "contracts" right-hand side of their home page. It appears that your broker is TD Ameritrade and they have already mentioned that the adjusted contract, in your case, is 169 shares. Goldcorp bought Glamis. There may be other adjustments. Therefore there are at least two separate series & classes of options, both based on GG. Would you be kind enough to research this yourself. Options traders must be able to carry out this type of research instantly, easily and accurately, so if you don't understand right now what has happened, this is an excellent learning opportunity. Hint: you will find that everything is perfectly logical. Hint # 2: following such an adjustment, new options drawn upon 100 shares of the post-reorg company will be created. These will become the standard trading options. The "old" options – the ones with the adjusted or lopsided deliverables – will become highly illiquid. No new positions will be created. The only trades will be longs or shorts closing their positions. B/As (bid/asks) will increase dramatically. You want to consider carefully what it means to be long or short such an option. Hint # 3: In a few cases, the takeover company had old options of its own before it bought out the target. These "old" options will form a third group with a third set of symbols. As an example, takeover XYZ bought ABX in a complicated deal for part shares/part cash. "Old" XYZ options adjusted & given new symbol after reorg. "Old" ABX options adjusted & given new symbol after reorg. "New" XYZ options with standard 100-share contracts created after reorg. As time passes, the "old" options will expire and disappear, leaving only the "new" or standard 100-share put and call contracts. All this can be confusing for an inexperienced trader. With the merger activity today, there are significant numbers of these situations and even the media have begun to publish articles. Good luck with any positions you may have, and please study them carefully before you take action. .