From the course: Derivatives Fundamentals

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Key components of option contracts

Key components of option contracts

From the course: Derivatives Fundamentals

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Key components of option contracts

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- [Instructor] Important components of an option include the following. First of all, we'll need to understand what is the underlying asset. It could be a commodity like gold, or it could be an equity, a share. Secondly, we need to know the expiration date. Next, we need to know the strike price. We also need to know the contract size. So for example, the majority of stock options come in contract sizes of a hundred shares per contract. We also need to know the type of delivery. Is it physical delivery or cash settled? An important component of an option is also its premium. How much is this option going to cost? We also need to know the type of option. Two common types of options are American options and European options, and we'll explore these in more detail over the next few slides.

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