Understanding options contract size is fundamental to options trading. Every options contract represents a specific number of shares of the underlying stock. Getting this wrong can lead to position sizes that are too large or too small for your intended risk. This guide explains everything you need to know about options contract sizes.
The Standard Options Contract
A standard equity options contract represents 100 shares of the underlying stock. This is the most common contract size and what most traders encounter.
The 100x Multiplier: When you see an option quoted at $2.50, you must multiply by 100 to get the actual cost. One contract at $2.50 costs $250 ($2.50 x 100 shares).
Why 100 Shares?
The 100-share standard exists for several reasons:
- Round lot alignment: Stock markets traditionally trade in round lots of 100 shares
- Exercise efficiency: When options are exercised, the buyer receives or delivers exactly 100 shares
- Hedging precision: Market makers can hedge options positions with corresponding stock positions
- Standardization: All participants know exactly what each contract represents
Calculating Options Costs
Always remember to multiply the quoted premium by 100:
Example: Calculating True Cost
- Option quote: $3.50 per share
- Contracts purchased: 5
- Cost per contract: $3.50 x 100 = $350
- Total cost: $350 x 5 = $1,750
Contract Size and Exercise
When an option is exercised, the contract size determines the share transaction:
Call Option Exercise
- The call buyer purchases 100 shares at the strike price
- The call seller must deliver 100 shares
- Total transaction value: Strike price x 100
Put Option Exercise
- The put buyer sells 100 shares at the strike price
- The put seller must buy 100 shares
- Total transaction value: Strike price x 100
Example: Exercise Value
You exercise a $50 call option:
- You pay: $50 x 100 = $5,000
- You receive: 100 shares of the underlying stock
- If stock is at $55, your shares are worth $5,500
Mini Options
Mini options represent 10 shares instead of 100. They were introduced to make options more accessible for traders with smaller accounts or for high-priced stocks.
Mini Options Characteristics
- Contract size: 10 shares
- Premium multiplier: 10x instead of 100x
- Lower capital requirements
- Limited availability (only certain stocks)
- Generally lower liquidity
Important: Mini options have largely been discontinued on most exchanges. Check current availability before planning to trade them.
Adjusted Contract Sizes
Contract sizes can be adjusted after corporate actions:
Stock Splits
After a stock split, options contracts are adjusted:
- 2-for-1 split: One contract becomes two contracts at half the strike price
- 3-for-1 split: One contract becomes three contracts at one-third the strike price
- Total contract value remains the same
Reverse Splits
After a reverse split, contracts may represent odd share amounts:
- A 1-for-10 reverse split might result in contracts representing 10 shares
- Strike prices are adjusted accordingly
- These adjusted contracts often have lower liquidity
Special Dividends
Large special dividends can create adjusted contracts with modified deliverables:
- 100 shares plus cash equivalent of the dividend
- Strike prices may be adjusted
- These contracts trade alongside standard contracts
Contract Size and Position Sizing
Understanding contract size is essential for proper position sizing:
Calculating Exposure
- Delta exposure: Contracts x 100 x Delta
- Maximum loss (long options): Premium paid x Number of contracts
- Maximum gain (short puts): Strike x 100 x Contracts - Premium received
Example: Position Size Calculation
You want $10,000 stock exposure through options:
- Stock price: $100
- ATM call delta: 0.50
- Each contract controls: 100 shares x 0.50 delta = 50 share-equivalents
- Contracts needed: $10,000 / ($100 x 50) = 2 contracts
Index Options Contract Sizes
Index options have different conventions:
SPX Options
- Multiplier: $100 per index point
- Cash-settled (no share delivery)
- European-style exercise
SPY Options
- Standard 100-share contracts
- Physically settled
- American-style exercise
Common Mistakes
Forgetting the Multiplier
New traders often forget that a $5 option costs $500 per contract. Always multiply the quoted price by the contract size.
Underestimating Assignment Risk
If you sell options, remember you may need to handle 100 shares per contract upon assignment. Ensure you have adequate capital or shares.
Ignoring Adjusted Contracts
Adjusted contracts after corporate actions may have different deliverables. Check the contract specifications before trading unfamiliar symbols.
Track Your Options Positions
Pro Trader Dashboard automatically calculates position sizes and exposure for all your options trades, accounting for contract multipliers.
Summary
Standard options contracts represent 100 shares of the underlying stock. This multiplier applies to both the premium you pay and the shares involved in exercise or assignment. Understanding contract size is essential for calculating true costs, proper position sizing, and managing exercise risk. While mini options and adjusted contracts exist, standard 100-share contracts are what most traders encounter. Always verify contract specifications, especially after corporate actions.
Continue learning about options with our guides on options contract specifications and options lot size.