Standardized Contracts
Exchange-listed options contracts are standardized, meaning the terms of
the contract, or the contract specifications, conform to a customary
structure. Standardization makes the terms of the contracts intuitive to the
experienced user.
To understand the contract specifications in a typical equity option,
consider an example:
Buy 1 IBM December 170 call at 5.00
Quantity
In this example, one contract is being purchased. More could have been
purchased, but not less—options cannot be traded in fractional units.
Option Series, Option Class, and Contract Size
All calls or puts of the same class, the same expiration month, and the same
strike price are called an option series . For example, the IBM December
170 calls are a series. Options series are displayed in an option chain on an
online broker’s user interface. An option chain is a full or partial list of the
options that are listed on an underlying.
Option class means a group of options that represent the same underlying.
Here, the option class is denoted by the symbol IBM—the contract
represents rights on International Business Machines Corp. (IBM) shares.
Buying one contract usually gives the holder the right to buy or to sell 100
shares of the underlying stock. This number is referred to as contract size .
Though this is usually the case, there are times when the contract size is
something other than 100 shares of a stock. This situation may occur after
certain types of stock splits, spin-offs, or stock dividends, for example. In
the minority of cases in which the one contract represents rights on
something besides 100 shares, there may be more than one class of options
listed on a stock.
A fairly unusual example was presented by the Ford Motor Company
options in the summer of 2000. In June 2000, Ford spun off Visteon