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Contract terms
An option specifies an underlying, option type, strike price, expiration, multiplier, exercise style, and settlement terms.
Lesson · Options Trading
Options Contract Fundamentals
Learn the underlying, call or put type, strike, expiration, premium, contract multiplier, holder rights, writer obligations, and contract-level cash flows.
Synthetic educational examples
Core concepts
Terms first, then who owes what, then the multiplier that turns a quote into dollars.
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Holder and writer
The holder buys a right. The writer receives premium and accepts an obligation if assigned.
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Contract multiplier
Standard equity contracts commonly represent 100 shares, while adjusted contracts can use different deliverables.
Interactive lesson
Pick a side and a type, set the strike, premium and quantity, and read the right or obligation and the dollars that move.
Buy 1 callRight to buy 100 shares at $100.00
ITMUnderlying at expiration$110.00
Strike$100.00
Premium per share$4.00
Total deliverable100 shares
Opening cash flow−$400
Expiration P/L+$600
A standard equity option commonly represents 100 shares, but adjusted contracts can have different deliverables.
Read an option contract
Decode the legal and economic terms before evaluating a chart or strategy.
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Identify the underlying and deliverable
Confirm the security and the exact shares, cash, or adjusted deliverable represented by one contract.
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Identify call or put
A call relates to buying at the strike; a put relates to selling at the strike.
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Identify long or short
Long means holder rights; short means writer obligations and assignment exposure.
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Convert quotes to contract dollars
Multiply per-share premium and payoff by the contract multiplier and quantity.
Contract terms and obligations
Score 0 / 0Choose the best answer.
Lesson rule
Change the inputs, calculate the result, and explain the risk before selecting a contract.
Common mistakes
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Treating the quoted premium as the total contract costEquity option premiums are normally quoted per share and require the multiplier.
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Ignoring adjusted contractsCorporate actions can change the deliverable and make a contract differ from the standard 100-share assumption.
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Confusing a right with an obligationThe holder chooses whether to exercise; the writer can be assigned under the contract rules.
Completion standard
✓
Finish when you can take one contract line — side, type, strike, premium, quantity — and state the right or obligation, the cash that moves at the open, and the expiration P/L at a given price before the decoder shows them.
The drill asks for the holder’s right, the writer’s obligation on assignment, and the dollar cost of a quoted premium; answer each without the multiplier being supplied.
Model scope: Theoretical values use a simplified European Black–Scholes model with a fixed 4.5% annual rate and no dividend input, so a number here can be reproduced in any calculator that takes those inputs. Listed products, early exercise, dividends, spreads, fees, and market conditions can produce different prices and outcomes.