Two contracts at 4.20 with a 100 multiplier cost how much before fees?
Reveal the worked answer
840.
Quantity×premium×multiplier; do not substitute the strike.
Core Options · OPT-F01 · Beginner
Read a contract and its premium
What does a 4.20 option quote actually cost?
What you will learn and prerequisites
- Explain the mechanism in the lesson question.
- Reproduce the worked comparison and recognize its failure case.
Read the contract before predicting the market. Underlying, call or put, strike, expiry, action, quantity, multiplier and premium are separate fields. A 100 strike is not a 100-dollar option price, and a 4.20 quote is not necessarily a 4.20-dollar transaction.
A ticket is a statement of rights and obligations. Misreading one field can create a different trade even when the market view is reasonable.
Understand the mechanism
A standard 100-unit teaching contract quoted at 4.20 costs 420 for one long contract before fees. Two cost 840. You have bought option rights, not immediately acquired 200 shares. A call concerns buying at the strike; a put concerns selling. Shorting either grants that right to another holder and creates an obligation.
The bid, ask, midpoint and last trade are different observations. A midpoint is not a guaranteed fill and a last price may be stale. Standard equity multipliers are commonly 100, but adjusted contracts can have different deliverables. Read the actual contract.
Walk through the process
Translate the ticket into a full sentence and write the total opening cash. Then inspect spread width, expiry and possible exercise consequences. Distinguish buy/sell to open from buy/sell to close.
When measuring return, keep cash and percentage units separate. A premium increase from 4.20 to 4.50 is 0.30 per unit, or 30 per standard contract. It is about 7.14% of the premium, not a 30% return and not the underlying's return.
A worked example
Buy two fictional QLT 100 calls for 4.20, multiplier 100. Premium outlay is 840. At an illustrative entry fee of 0.65 each, cash outlay is 841.30. Later sell both at 4.50 with another 1.30 total fees: proceeds before fees are 900 and net round-trip P/L is 900−840−1.30−1.30=57.40.
The strike does not enter this closing-trade arithmetic because the rights were sold, not exercised. The graph scales premium cash by contract count.
Read a contract and its premium—worked comparison
Vertical: Example value
Horizontal: Illustrative observation
1. Fictional example
Read the graph as a data table
| Illustrative observation | Fictional example |
|---|---|
| 1 | 420 |
| 2 | 840 |
| 3 | 1,260 |
| 4 | 1,680 |
| 5 | 2,100 |
What would invalidate the reading?
Budgeting 4.20 instead of 420 understates the contract outlay by a factor of 100. Buying many cheap options can still create a large total premium loss. Cheap quoted price is not a risk classification.
Check your understanding
Try the question before revealing its answer. These are reading checks, not trading certification or a site completion record.
What is the critical failure to avoid?
Reveal the worked answer
Budgeting 4.20 instead of 420 understates the contract outlay by a factor of 100. Buying many cheap options can still create a large total premium loss. Cheap quoted price is not a risk classification.
Explain this risk before treating the example as a decision rule. A correct calculation does not guarantee a favorable market outcome.
Return to the question: What does a 4.20 option quote actually cost? State the observed facts, the assumptions and the failure condition separately.
Sources, assumptions and downloadable script
External references support definitions and conventions. Worked scenarios and prose are original. No current quotes or dealer inventory are claimed.
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