Put Option Pricing

Question

I'm looking to buy a put option, but I don't understand the pricing.

There is a stock X, and it trades at $200 / share. A 1 week put option is priced at $0.75 / option. But to actually make the trade for 1 option, the cost of the transaction is $75.00 -- 100x the put cost!

Similarly, if I buy a longer term put option, ~180 days, the cost is $8.00 / share, and the transaction cost for 1 share is ~$800.00.

Why is the cost of the order 100x the cost of the actual put option price?

Welcome to Money.SE. I highly recommend you take some time and read the questions tagged options over the next few days. Options are not for everyone (just like individual stocks aren't) and it's important to understand as much as you can before you buy your first contract. — JTP - Apologise to Monica, Jul 29 '16 at 15:44
BTW, with 350 such questions, you can see, it's a topic that has a following here. In one post I'd recommend I suggest a great book on the topic, and offer some of my own experience. — JTP - Apologise to Monica, Jul 29 '16 at 15:56

score 8 · Accepted Answer · answered Jul 29 '16 at 15:36

Standard options are contracts for 100 shares. If the option is for $0.75/share and you are buying the contract for 100 shares the price would be $75 plus commission. Some brokers have mini options available which is a contract for 10 shares. I don't know if all brokers offer this option and it is not available on all stocks.

The difference between the 1 week and 180 day price is based on anticipated price changes over the given time. Most people would expect more volatility over a 6 month period than a 1 week period thus the demand for a higher premium for the longer option.

The simplest answers are the best. I don't know why this didn't come up in any of my research. — James, Jul 29 '16 at 15:39

Put Option Pricing

1 Answers1