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A Complete Guide to the Futures mArket either dollars (or cents) per unit or points. Table 34.1 illustrates how to calculate the dollar value of 
a premium. As a specific example, a trader who buys a $1,000 August gold call at a premium of $50 
pays $50/oz ($5,000 per contract) for the right to buy an August gold futures contract at $1,000 
(regardless of how high its price may rise) at any time up to the expiration date of the August option.
Because options are traded for both puts and calls and a number of strike prices for each futures 
contract, the total number of different options traded in a market will far exceed the number of 
futures contracts—often by a factor of 10 to 1 or more. This broad variety of listed options provides 
the trader with myriad alternative trading strategies.
Like their underlying futures contracts, options are exchange-traded, standardized contracts. 
Consequently, option positions can be offset prior to expiration simply by entering an order opposite 
to the position held. For example, the holder of a call could liquidate his position by entering an order 
to sell a call with the same expiration date and strike price.
The buyer of a call seeks to profit from an anticipated price rise by locking in a specific purchase 
price. His maximum possible loss will be equal to the dollar amount of the premium paid for the 
option. This maximum loss would occur on an option held until expiration if the strike price were 
above the prevailing futures price. For example, if August gold futures were trading at $990 upon the 
expiration of the August option, a $1,000 call would be worthless because futures could be purchased 
more cheaply at the existing market price.
3 If the futures were trading above the strike price at expira-
tion, then the option would have some value and hence would be exercised. However, if the difference 
table 34.1 Determining the Dollar Value of Option premiums
Contracts Quoted on an Index
Option premium (in points) × $ value per point = $ value of the option premium
Examples:
E-mini S&P 500 options
8.50 (option premium) × $50 per point = $425 (option premium $ value)
U.S. dollar index options
2.30 (option premium) × $1,000 per point = $2,300 (option premium $ value)
Contracts Quoted in Dollars
Option premium (in dollars or  
cents per unit)
× No. of units in futures contract = $ value of the option premium
Examples:
Gold options
$42 (option premium) × 100 (ounces in futures contract) = $4,200 (option premium $ value)
WTI crude oil options
$1.24 (option premium) × 1,000 (barrels in futures contract) = $1,240 (option premium $ value)
3 However, it should be noted that even in this case, the call buyer could have recouped part of the premium if 
he had sold the option prior to expiration. This is true since the option will maintain some value (i.e., premium 
greater than zero) as long as there is some possibility of the futures price rising above the strike price prior to 
the expiration of the option.