Platform Guide · Lesson 12 of 13
Read the Whole Option Contract
Before comparing prices, read every term of the contract at your broker, and choose an expiration that gives your scenario time to play out.
In this lesson
- Name every term of an option contract
- Convert a premium per share into a contract cost
- Explain why the cheapest contract isn’t automatically the least risky
A bought call gives the right to buy under the contract’s terms; a bought put gives the right to sell. At your broker, read the underlying, call or put, strike, expiration, multiplier and settlement terms. StratosHedge supports the research; the broker provides the executable quote and the order ticket.
For a standard equity contract covering 100 shares, a $2.40 premium costs $240 before fees. Compare the bid, the ask, the quote time and the size shown. Volume counts today’s trading; open interest counts contracts still open. Neither means your order will fill at the midpoint.
Example Consider this example
Two calls cost $0.40 and $2.40 per share. The first expires today and the second later. The first needs less cash, but that alone says nothing about which one fits a thesis that needs several days.
Choose an expiration that lets you test the scenario you wrote, and check whether an earnings release or another event falls before it. The Greeks, spreads and trade plans are covered in The Greeks as Dials, Defined-Risk Structures and Writing a Trade Plan.
Check your understanding
2 questions. Answer each one, then open “Show answer” to compare.
Question 1 of 2 A standard equity option covers 100 shares and its premium is $1.75 per share. What does one contract cost before fees?
dollarsShow answer
Answer: 175 dollars.
$1.75 × 100 shares = $175.
Show answer
Answer: B. The premium says nothing about the chance of expiring worthless, the spread or the time left
A low premium can come with little time and a small chance of finishing in the money. Price is one input, not the risk.
Key takeaways
- Read every contract term at the broker.
- Premium × 100 is the cost of a standard contract before fees.
- Pick an expiration that gives the scenario time to play out.
Sources and further reading
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Educational content, not investment advice. Lessons describe how markets and models tend to behave. They don’t tell anyone what to buy, sell or hold. Interactive examples use illustrative sample data, and simulator results are simulated — not actual trading. Options involve risk and are not suitable for all investors.
Risk disclosureCharacteristics and Risks of Standardized Options (OCC) (opens in a new tab)