Discover the most important elements of an options contract: the option price, the strike price, the underlying asset, the contract size, and the expiry date (the point in time at which you can make use of your right to buy or sell the underlying asset). These are detailed in the option contract specifications. Once you learn these initial basics, you can move on to more detailed topics such as position management and valuation.
In this first part of the training we discuss the most important elements of an options contract: the option price, the strike price, the underlying asset, the contract size, and the expiry date (the point in time at which you can make use of your right to buy or sell the underlying asset).
The options that are traded on the Euronext derivatives market meet certain standard conditions. The contract size, lifetime, expiration date and exercise price (or strike price) are standardised. The option premium is the only variable element.
Option premiums are quoted as the amount payable for each unit of the underlying value. The contract size is the quantity of the underlying value that corresponds to one option contract. The contract size is based on the trading unit and the pricing unit (is often 1).
The lifetime of an option is the maximum period during which the option represents a right. At the end of this period the right no longer exists and the option has no value. The lifetime of options traded on Euronext’s derivatives market varies from one month to five years.
The last day of trading in an option is the last day on which it is possible to trade in an expiring option series. Weekly options and even Daily options exist on the Euronext derivative markets. However, for most classes the last day of trading is the third Friday of the expiration month. If the markets are closed on the third Friday of the month, the last day of trading in the option series is the last day of trading before the third Friday. After trading has stopped in an expiring series, the right to buy or sell the underlying value can still be exercised until the cut-off time. Your broker may observe different cut-off times. Each broker is free to set a different, earlier cut-off time for submitting exercise instructions or orders for transactions in expiring series. The broker will pass on to the options clearing the exercise instructions received from its clients.
The exercise price, also known as “strike” or “strike price”, is the price at which the holder (i.e. buyer) of the option can buy or sell the underlying value when the option is exercised. The exercise price is stated as an amount payable for each unit of the underlying value. When Euronext announces the introduction of options with a new expiration month, it sets a number of different exercise prices which are close to the market price of the underlying value at that time. Euronext sets the interval between the exercise prices for each option class individually. In normal circumstances, once an option series has been listed by Euronext it will continue to be traded until the expiration date.
Contract Specifications - Options Investing E-learning
Learn the basic terminology used when trading options. Discover the most important elements of an options contract: the option price, the strike price, the underlying asset, the contract size, and the expiry date (the point in time at which you can make use of your right to buy or sell the underlying asset). These are detailed in the option contract specifications. Once you learn these initial basics, you can move on to more detailed topics such as position management and valuation.