Options intro · Risk conversion
One Call is not one share: measure the stock risk behind the contract
Seeing Premium of US$1.50 does not mean the whole contract pays only US$1.50—and one contract does not mean one share of risk.
Step 1: Know the quote unit
U.S. equity/ETF option Premium is usually quoted per share, while one standard contract usually covers 100 shares. So US$1.50 per share is typically US$1.50 × 100 = US$150 per contract before commissions, platform, exchange, and other fees.
Premium per share × shares per contract × contracts = total Premium. Example: 1.50 × 100 × 2 = US$300. That is Premium received—not guaranteed Covered Call profit.
Step 2: Convert contracts to shares
Two standard Covered Calls usually cover 200 shares. If you hold 100 shares and sell two Calls, one is not fully covered—risk and broker requirements differ. Write “2 × 100 = 200 shares,” not just “2.”
Step 3: Convert to stock notional
At US$200/share, two standard contracts cover 200 shares = US$40,000 notional. US$300 Premium offsets only a small decline. A 20% drop is about US$8,000 on the stock—Premium does not cover that main risk.
Step 4: Check for adjusted contracts
“One contract = 100 shares” is common, not eternal. Splits, mergers, special distributions can change deliverables, strikes, or specs. If the platform shows non-standard contracts, read OCC memos and broker data—do not assume 100 shares.
Five-line check before ordering
- Is Premium quoted per share or per contract?
- What are multiplier and deliverable?
- How many shares do contracts cover in total?
- What is that stock worth in dollars now?
- If stock falls 10%, 20%, or 30%, how much does Premium offset?
Only with clear units should you discuss annualisation—otherwise a precise percentage sits on the wrong denominator.
Use the Premium annualisation tool →
Why “one point” is not max loss
What one point is worth depends on the multiplier. Standard U.S. equity options often use 100, but adjusted contracts after corporate actions may deliver different share counts, cash, or other securities. Do not treat a 1.00 quote as US$100 until you check specs.
Contract checklist before sending
- Verify symbol, underlying, expiry, call/put, and strike.
- In the order preview, find Multiplier, Deliverable, and quantity.
- Convert Premium, max obligation, commissions, and spreads to dollars.
- Test with one contract first—“cheap price” is not “small risk.”
After mergers, splits, special dividends, or spin-offs, read OCC Information Memos. Old contracts may not compare directly with new standard ones.
Trading costs · Assignment duties
Common myths
“I can only lose Premium” applies to some long-option-only cases. Short options create exercise duties; with stock, judge total P&L together.
“One contract is small” can be an illusion. A 100-share Put at a US$50 strike is a US$5,000 buy obligation—before FX, fees, and further declines.
Sources: OCC/OIC: Options Basics · OIC: Options Overview for Investors
Verified: 10 October 2026. Examples ignore taxes and some fees; not personal advice.