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KembaraXtra – Islamic Derivatives: Why One Option Contract Represents 100 Shares
🔹 Key Idea
👉 In stock options:
✔ 1 option contract = 100 shares of stock
👉 This is a standardized rule in the market
🔹 1. Why 100 Shares?
👉 The market uses standardization to:
✔ So:
🔹 2. How It Works
✔ Example (Call Option)
📅 If you exercise:
👉 You can buy:
✔ Not just 1 share — always 100 shares
🔹 3. Premium Calculation
👉 Premium is quoted per share, but paid for 100 shares
✔ Example
👉 Total cost:
🔹 4. Profit Calculation
👉 Profit is also multiplied by 100
✔ Example
👉 Profit:
🔹 5. Why This Is Important (Leverage Effect)
👉 With small premium:
✔ This creates leverage
🔹 6. Simple Comparison
🔹 Simple Summary
🔹 Final Exam Insight
👉 “An option contract typically represents 100 shares to standardize trading, allowing investors to control a larger position with a relatively small premium.”
🔹 Key Idea
👉 In stock options:
✔ 1 option contract = 100 shares of stock
👉 This is a standardized rule in the market
🔹 1. Why 100 Shares?
👉 The market uses standardization to:
- Make trading easier
- Ensure consistency
- Simplify pricing
✔ So:
- 1 contract always controls 100 shares
🔹 2. How It Works
✔ Example (Call Option)
- Strike price = RM10
- 1 contract = 100 shares
📅 If you exercise:
👉 You can buy:
- 100 shares × RM10 = RM1,000
✔ Not just 1 share — always 100 shares
🔹 3. Premium Calculation
👉 Premium is quoted per share, but paid for 100 shares
✔ Example
- Premium = RM2
👉 Total cost:
- RM2 × 100 = RM200
🔹 4. Profit Calculation
👉 Profit is also multiplied by 100
✔ Example
- Price increases by RM5
👉 Profit:
- RM5 × 100 = RM500
🔹 5. Why This Is Important (Leverage Effect)
👉 With small premium:
- You control 100 shares
✔ This creates leverage
🔹 6. Simple Comparison
- Buying shares:
- Pay full price for 100 shares
- Buying option:
- Pay small premium
- Control same 100 shares
🔹 Simple Summary
- 1 option contract = 100 shares
- Premium and profit are multiplied by 100
- This increases leverage
🔹 Final Exam Insight
👉 “An option contract typically represents 100 shares to standardize trading, allowing investors to control a larger position with a relatively small premium.”
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