LOT SIZE of a derivatives contract - Futures and Options

What is Lot size? (Futures and Options)

While trading in Futures and Options, be it stock futures and options or commodity futures and options, you can only trade multiples of a fixed number called the LOT size of that contract. Every stock or commodity which is traded on the derivatives market has a LOT SIZE.

Say you are trading gold derivatives on the commodities market and the lot size of gold is 1 kg. This means that any gold futures contract or options contract is going to be for 1 kg. of gold. For example, by buying one futures contract of gold you enter into an agreement to purchase 1 kg of gold at the expiry date. Similarly if you are trading stock options, say for a company called coca cola which has a lot size of 100 shares then by buying one call option contract to buy coca cola will give you the right (but not the obligation) to buy 100 shares of coca cola at the strike price on the expiry date (or anytime before the expiry date if the options is a European style options contract).

You cannot trade fractional lot sizes while trading in futures and options. Of course you can trade multiples of a given lot size simply by trading more than one contract. However one options or futures contract will always be for the specified lot size.

Pricing and Lot Size - word of caution

Also the price of the futures or options contract is specified not 'per lot' but per unit of the commodity or stock. For e.g. if the premium or cost of buying one put option of a particular stock is $5, then the total premium you will have to pay is $5 x lot size.

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    Mar 14, 2009

    1 comments:

    Anonymous October 25, 2010 at 11:49 AM  

    Thanks for the entire series of OPTION Trading...
    It helps me out to understand very clearly..
    Thx once again,GOD bless u.

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