Contract multiplier

The contract multiplier is the number that translates an option's quoted premium into the actual dollar amount a buyer pays or a seller receives. For standard US equity options, one contract represents 100 shares of the underlying stock, so the multiplier is 100 unless a corporate action such as a stock split has adjusted it.

The formula is:

An option quoted at a premium of $2.50 therefore costs $250 to buy one contract, not $2.50, since the quote reflects the price per underlying share rather than the price of the whole contract. This is one of the most common sources of confusion for new options traders, who sometimes underestimate the actual capital required or the actual dollar risk involved by forgetting to apply the multiplier.

The same idea applies to futures contracts, where the multiplier, sometimes called the contract size, defines how many units of the underlying asset one contract controls, a barrel count for oil or an index point value for an equity index future. Knowing the multiplier is essential for sizing any options or futures position correctly, since a small move in the quoted price can translate into a much larger dollar swing once it is multiplied across the full contract.