Contract Size (Options)

Definition

The term contract size refers to the deliverable quantity of a commodity or security named as the underlying asset in a futures or options contract.  The deliverable quantity, and therefore the contract size, for futures and options contracts are standardized but vary according to the underlying asset.

Explanation

The contract size is an important variable to understand when entering into an options or futures contract.  This value not only defines the deliverable quantity, but is directly related to the dollar value of the transaction.  While the deliverable quantity may vary with the underlying asset, there is a standard for each asset type.  For example, the contract size for an equity option is 100 shares of stock.

The trading unit for agricultural futures contracts is typically 5,000 bushels, while the trading unit for livestock futures is 40,000 pounds.  The trading unit for weather futures contracts is $20.00 times the cooling degree day index, regardless of the location.  While all contract units are standard for a particular commodity, it may vary within a class of commodities.  For example, the contract size for gold is 100 troy ounces, while the contract size for high grade copper is 25,000 pounds.

Related Terms

options cycle, contingency order, condor spread, combination