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Unit Multiplier

Unit multiplier is different from instrument to instrument; one who wants to trade an instrument needs to check the unit multiplier.

In general, futures and options contracts represent the value of the instrument times the multiplier.

The stock options multiplier is 100 shares. Let’s say that Wal-Mart (WMT), for instance, has a $50.00 strike price. This options contract at the expiration represents $50.00 a share X 100 = $5,000.00, and all the calculations will relate to this contract At the expiration date if WMT trades at $55.00, it means that its underlying security value is $55.00 X 100 = $5,500.00.

The contracts valuation represents a value and the underlying security represents a value, and the difference is $5,500 - $5,000 = $500.

Later on, with additional options contract explanations, the multiplier will be more understandable.

A multiplier of 100 is common with stock options, trading instruments such as the S&P 500; the contract value will be very high and larger amount of cash a trader will need to trade this instrument. For a reasonable value of an instrument to be traded, an alternative instruments offering a resolution where issued.

An ETF (SPY) is traded at 1/10 of the index. If the index is at 900 then the SPY price will be $90.00. The future E—MINI S&P500 ES is traded as the index figure and the multiplier is 50. For example, if the index rises from 900 to 904 the ES futures holder makes a profit of 4 X $50.00 = $200.00. ES options are traded at the same multiplier and calculated the same way.

Commodity Futures Multipliers
Corn futures (ZC) with a multiplier of 5,000, for example, ZC market price is $330.00. This means that one hundred bushels cost $350.00 at $3.50 a bushel.

If the contract multiplier is 5,000 a change of one dollar in the underlying price will benefit the futures contract holder a sum of $5,000.00.

Light Sweet Crude Oil (CL) at the market price of $50.00 a barrel the future contract represents 1,000 barrels (42,000 gallons). A change of one dollar in the underlying price will benefit the future contracts holder a sum of $1,000.00.

GLOBEX, EURO-DOLLAR (GE): Eurodollar futures contract reflects the London Interbank Offered Rate (LIBOR); this interbank rate serves as a benchmark interest rate for corporate funding.

A future characteristic is a market price that represents a discount from the par (par value in bonds) is 100. For example, if futures contract (GE) market price is $96.76, it means that LIBOR is trading at 100.00 – 96.76 = 3.24%.

For a contracts multiplier of 2,500, a simple calculation reveals that every pip (point) change is worth 0.01 X 2,500 = $25.00

As mentioned before, each contract has its own unique characteristics, and one who wants to trade an instrument must do his or her investigations diligently and understand the rules to play the game.