For those of you working in the industry, I would like to get a clear explanation about multiplier. they express it in dollar term. But i have an issue when they multiply the multiplier by the number of contracts, the result provide the number of stocks. Here is why. I know if I bought 7 apples ( my contract) at $1 each ( my multiplier) therefore, the result should be $7 NOT 7 bananas. so why multiply dollar by some number of good does not result in dollar? Bear with me that I fully understand the topic but confuse about the calculation. For instance they have 1211 contracts @500 multiplier = 605,500 stocks NOT 605,500 . It does not make sense to me. Please help me understand, I will appreciated.
Any thought or my english is so bad, therefore, you guys do not understand my question?
Dude. Give the people some time to answer. It hasn’t even been twenty minutes. Everybody in the US is either at work or still asleep. ; ) I would help if I could, but I don’t have my books at work.
mwvt9 Wrote: ------------------------------------------------------- > Dude. Give the people some time to answer. It > hasn’t even been twenty minutes. Everybody in the > US is either at work or still asleep. ; ) > > I would help if I could, but I don’t have my books > at work. Dude. I am in the US and I am at work too 
mwvt9! shouldn’t you always have your books with you? You should never leave those pretty books home. At least keep the one that you are studying on with you. Am I nuts?
tibwa Wrote: ------------------------------------------------------- > Am I nuts? Yes, but almost everybody on AF is (me included) so don’t worry about it.
mwvt9: You asked me to wait and I have got nothing yet. You need to take tou responsibility dude.
I can give you a crappy answer if you want. That is probably about the best I can do. : )
I’ll start SS 15 on Friday and (hopefully) finish it next Tuesday. If I feel I can answer your question and it hasn’t been answered I’ll bump this thread when I get there.
i don’t have my books… but are you sure they have contracts x the multiplier? the multiplier is just an arbitrary number that you multiply the index value by to get the $ amount for one futures contract… like the sp’s (spx futures) trade at 250x the index value. so with the index at 746 (my god), you’d have to spend 250x 746 = $186,500 to buy one contract. meaning, you couldn’t go buy 1 futures contract for 746… i’m probably not answering your question, but thought i’d give it a go. i agree with you that mwvt needs to take responsibility. : )
Yes! Express the multiplier in dollar term. This is what confuse me, In problem #2 they state that the contract priced at 498.3 with a $500 multiplier. The number of contract needed is 1211. They then multiply 1211*$500 =605,500 stocks. It does not make sense to me. WS and Maratikus, are you guys getting fired or something. I am not jocking because I know you guys could be all over this to give me the right answer. Hopefully , you went to some Oscar party last night and you have not been able to recover after drinking too much or seing some pretty girls that do not want to give nothing
When you have an index future like S&P 500 index future, the value of a contract on S&P 500 index is S&P 500 index value * Its Multiplier. Every index has its own multiplier to multiply with inorder to arrive at the value of one contract on that index. For example, I am aking this up … S&P 500 value = 950 S&P 500 Index multiplier = 250 Value of one contract on S&P 500 = 950 * 250 = 237,500 Hope this helps.
Unlike stock option, which the actual shares can be delivered upon exercise (if you buy a call, you can buy the stock; if you bought a put, you can sell the stock…ect); how can you deliver an index? In the context of the material, you can’t really deliever the S&P index per se. Therefore, how do you determine the value of index option. Like GetSetGo said, the multipler is set by the exchange, it is simply a method to convert the index level to the price an individual have pay. Unlike stock option that can be exercised at the expiration or prior to expiration (for American Option), index option can’t be exercise…it is netted. Example. S&P index 1000, you are feeling bullish, you buy 1 S&P index call @ 1000 You pay 1000x500=$500,000 then S&P index goes to 1050, you sell you option, You get 1050X500=$525,00 Your profit = $525,000-$500,000=$25,000 The multipler for index is simply to conver the index to a price for you to pay. Does this help?
tibwa Wrote: ------------------------------------------------------- > Express the multiplier in dollar term. This is > what confuse me, In problem #2 they state that the > contract priced at 498.3 with a $500 multiplier. > The number of contract needed is 1211. They then > multiply 1211*$500 =605,500 stocks. It does not > make sense to me. I read your question again…here is what I can think of, I don’t think they are really talking about “stock”, maybe units. As for equity options, each contract represent 100 shares of the underlying shares. Don’t have the books in front of me, but I think if the number of contract needed is 1211, again 500 is an mulitper by the exchange; then the total number of underlying security is 1211 x 500 = 605,500 units. Similar to stock option, if you have 10 contract, and multipler is 100, you are contracting 10 x 100 =1000 shares of underlying stock. 2nd attempt, hope this helps some!!
ws Wrote: ------------------------------------------------------- > Unlike stock option, which the actual shares can > be delivered upon exercise (if you buy a call, you > can buy the stock; if you bought a put, you can > sell the stock…ect); how can you deliver an > index? In the context of the material, you can’t > really deliever the S&P index per se. Therefore, > how do you determine the value of index option. \> Like GetSetGo said, the multipler is set by the \> exchange, it is simply a method to convert the \> index level to the price an individual have pay. > Unlike stock option that can be exercised at the > expiration or prior to expiration (for American > Option), index option can’t be exercise…it is > netted. > > Example. > > S&P index 1000, you are feeling bullish, you buy 1 > S&P index call @ 1000 > You pay 1000x500=$500,000 > > then S&P index goes to 1050, you sell you option, > You get 1050X500=$525,00 > > Your profit = $525,000-$500,000=$25,000 > > The multipler for index is simply to conver the > index to a price for you to pay. > > Does this help? Thanks ws and GetSetGo but if you look at 1211*$500=605,500 unit ( I like the idea is the unit not stock per se) However, I would not question the logic is the 1211*500= 605,500 What I am question is the fact the multipler is $500 and 1211*$500 CANNOT equal to 605,500 units but $605,500. But I do understant that what we need the unit not dollar . Please read the question in the book, you will see clearly my concern. But if they give an exam question like this, I certaintly am going to get it but I will still question the logic until I know why.
Did you see my second post?
ws Wrote: ------------------------------------------------------- > Did you see my second post? Yes! I saw it and I agree with it. I do understant that logic but my problem is the $ ( dollar ) sign in front of the multipler. I would prefer to see 500 instead of $500. You anologeous abouy option is definitely correct but they will never put $100 but instead 100 without the dollar sign. Do you see my point?
Look at E-mini S&P 500 futures March contract . Currently traded at 747.25, each point represents $50. $50 is your multiplier and depends on the contract SIZE. Value of the contract = Contract price in points*dollar value of a point. Multiplier is the dollar value of a point.
maratikus Wrote: ------------------------------------------------------- > Look at E-mini S&P 500 futures March contract . > Currently traded at 747.25, each point represents > $50. $50 is your multiplier and depends on the > contract SIZE. > > Value of the contract = Contract price in > points*dollar value of a point. Multiplier is the > dollar value of a point. The thread ender had to step in…
maratikus Wrote: ------------------------------------------------------- > Look at E-mini S&P 500 futures March contract . > Currently traded at 747.25, each point represents > $50. $50 is your multiplier and depends on the > contract SIZE. > > Value of the contract = Contract price in > points*dollar value of a point. Multiplier is the > dollar value of a point. maratikus: The term " Value of the contract" means the number of unit then. The reason that I asking is because if you look at the problem, you will see futures price at 598.3 (NOT dollar) with a multiplier of $500. I tought I would have seen it the other way around. Meaning price at $598.3 with a multiplier of 500. I guess I get it wrong. So I give up and I think one day i will get there.Meantime, let try to pass this test. Thanks a lot
I think the mulitplier is a unit (it does not have a value, just a multiplier) but for presentation and bec it is a multiplier to the contract size it is shown in (and the futures price w/o the ). If we buy 1 futures contract on the S&P500 it will be effectively long 250 units, I dun see how the value should be $250 since it is just a multiplier to the contract size. Example if we buy 100 futures contract on the S&P 500 @ the futures price of say 1,000, we are effectively buying 100 x 250 = 25,000 units (not ) @ $1,000 or actual futures price of $25million. Cheers - good question, great learning.