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Notional value

The total value of the stock an option controls — the strike times 100, not the premium you pay.

Notional value is the total market value that an options contract actually controls, not the price you pay for it. Because a standard equity option covers 100 shares, you multiply the underlying's price by 100 (and by the number of contracts). So a single call on a stock trading at 50 dollars carries a notional value of 5,000 dollars, even if the premium cost you only 200 dollars.

Traders use notional value to size positions honestly. The premium tells you what's at risk if the option expires worthless, but the notional tells you how much exposure you're really carrying to the underlying's moves. One cheap contract on a high-priced stock can quietly represent tens of thousands of dollars of directional risk.

The common mistake is thinking small premium means small position. Selling five puts on a 200 dollar stock looks harmless when each costs a few hundred, but the notional is 100,000 dollars of potential obligation if you get assigned. Always check the notional before deciding how many contracts you can genuinely afford to hold.

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Educational use only. Quotes are delayed ~15 minutes and nothing here is financial advice. Options trading involves substantial risk of loss.