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