Options Trading
Option contract multiplier indicates the amount an option contract represents, in terms of the underlying security or instrument. It is also referred to as "option contract unit size". In the United States, most equity options use a multiplier of 100, which means one equity option will deliver or buy 100 shares of the specified equity when reaching expiry or being exercised.
For option contracts with other underlying security types such as indices, commodities, or currencies, the multiplier can vary from contract to contract, or from instrument to instrument. For example, in the futures options market, each NASDAQ 100 futures options contract with a strike price of 2800 will represent 20 NASDAQ 100 futures contracts, so the option contract multiplier for this particular contract would be 20.
The multiplier for equity options is set in the US by the Options Clearing Corporation, whose mission is “to provide the marketplace with the highest level of integrity through the sound regulation of listed options markets and the standardization of listed options contracts”. This is fundamental to the smooth operation of the equity options marketplace.
The option contract multiplier is an important factor when trading options. When trading in an option contract, the margin requirement is usually computed as a percentage of the total value, which is determined by multiplying the option multiplier by the option contract value. This is commonly referred to as the "margin multiplier".
The margin multiplier also varies depending on the option contract and the option exchange. For example, the margin multiplier for Chicago Board Options Exchange (CBOE) equity options is 1.15, but the multiplier for non-equity option contracts and Index options is 2.0.
When an option trader exercises, or when the option expires, the total number of stock or underlying asset delivered can be determined by multiplying the option multiplier from the contract by the number of contracts traded.
Knowing and understanding the option contract multiplier, as well as the associated margin multipliers, is an important part of successful options trading.
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