Understanding Option Contract Details

Contract details refer to the terms of an option contract. How an option contract gains or loses value, and therefore creates a benefit to you as the holder of the option, is dependent on key option contract details. Understanding the key contract details is essential to determining how and when an option will meet your financial objectives. Choosing the right options contract for you is dependent on your objectives. For example, if you want to protect or hedge an asset, you will need to know the contract details to determine the best fit for your portfolio; when speculating, your trading strategy might be influenced by the contract details.

Key Option Elements

Underlying

The deliverable for every CME Group option is a futures contract. This is called the “underlying instrument” or the “underlier”.  Futures contracts also have an underlying product such as an interest rate, equity index, a foreign currency rate, or some other commodity.

Expiration/Maturity Date

Each option also has its own expiration or maturity date. This is the last day on which an option can be exercised into the underlying futures contract. After the expiration or maturity date, the option contract will cease to exist; the buyer cannot exercise and the seller has no obligation.

Strike Price

This is the agreed price at which a transaction will happen, if the option is worth exercising. The strike price for the option contract will determine the value at expiration.

Option Type

Option contracts fall into two categories, call options and put options.

call option is the right to “buy” the underlying product at a predetermined price.

put option is the right to “sell” the underlying product at a predetermined price.

Before establishing your option position, you will need to carefully consider your financial strategy and objectives. Whether you are hedging or pursuing a trading strategy, close alignment of the contract details are important to achieving desired results from your option position.

Test Your Knowledge

ACCREDITED COURSE

Did you know that CME Institute classes can fulfill CFA and GARP continuing education requirements? Every CME Institute course can be self-reported in your CFA online CE tracker and select classes can be used for GARP credits. See which of our classes qualify for GARP credits here.

What did you think of this course?

To help us improve our education materials, please provide your feedback.

Extend your learning

Put your knowledge into practice with the Trading Simulator

Get hands on experience with the latest Trading Challenge

CME Group is the world’s leading derivatives marketplace. The company is comprised of four Designated Contract Markets (DCMs). 
Further information on each exchange's rules and product listings can be found by clicking on the links to CME, CBOT, NYMEX and COMEX.

© 2022 CME Group Inc. All rights reserved.