I’ve read a few option books.
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So far, yours is the best blog/site on basic options notes in the web that I have chanced upon.

Thursday, April 12, 2007

Stock Option Contract Specification

An option contract specifies the following:

  • The underlying stock (e.g. AAPL, DELL, MSFT, etc.)
  • The Expiration Date of the contract (i.e. Third Friday of the Expiration Month)
  • The Strike Price (or Exercise Price)
  • Option Type: Call or Put option
  • The Price of the option contract, which is often called “Premium”
  • Number of option contracts

By default, one option contract represents 100 shares in the underlying stock, whereas the quoted price of an option is per share. Hence, the quoted price of an option must be multiplied by 100 to get the cost of option per contract.

The common format to specify stock option contract is as follow:

The underlying stock ticker, Expiration Month, Strike Price, Call / Put

Example:
AAPL May 95 Call refers to Call option for Company AAPL (Apple Inc.) with Strike Price of $95 and Expiration Date of the third Friday of May.
Suppose you buy 2 AAPL May 95 Call with option price of $5, the total cost will be: 2 contracts x 100 shares/contract x $5 = $1,000.

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