Stock Options Contract Calculator

How many stock option contracts should you buy?

Option contracts can be a great addition to your investment strategy. This calculator can help you figure out how many contracts you should purchase with a few simple details. The system takes into account your risk tolerance, contract equity, and the initial investment to help you work out your next move. The report will advise how much of your assets could be at risk and how many contracts you should buy. For those new to option contracts, you can read through the content on this page to learn more about how this investment works.

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What are option contracts?
An option contract is a type of investment that gives you the ability to buy or sell stocks at a specified price, by a specific date. Option contracts differ from stocks, which are merely shares of a corporation. When purchasing a company’s stock, you become a shareholder relative to the number of stocks you buy. By obtaining an option contract, you gain the right to buy or sell their shares as you please at a set price.
The main difference is your obligation and the price of shares. With an option contract, the set price of the stock is called the strike price. If the strike price on the contract differs from the stock price, you can profit from exercising your shares. Yet, the defining feature of contracts is that you don’t have to. In many ways, option contracts are similar to stock option grants seen in the workplace. This differs from stocks in that stocks are always exchanged at the publicly traded price.
What is a typical option contract?
Option contracts have a specific setup, which can vary based on the type of investment. However, a typical stock option contract will involve 100 company shares. Most contracts expire by the third Friday of every month, but the maturity of the contract can vary. Some contracts terminate within one month, while others may last several months.
Like stocks, contracts are publicly traded on exchanges every day of the week. Investors can purchase two types of contracts, named calls or puts. The decision to buy calls or puts depends on what you think will happen to the stock. Buying calls gives you the right to purchase shares at the strike price, even if the stock increases in value. Meanwhile, buying puts allows you to sell shares at the strike price, even if the stock becomes less valuable. Thus, your choice should depend on your opinion of the stock’s direction and the contract maturity.
Is an option contract right for me?
Option contracts can be a great way to diversify an investment portfolio. Since contracts tend to be less expensive than buying stocks, option contracts are relatively easy to commit to. The strike price is only due if the option owner chooses to make a trade. Thus, option contracts can allow you to access valuable stocks, at a fixed rate, for a small premium.
When utilized correctly, option contracts can leverage a position on a stock while avoiding the risk of a full purchase. This is called hedging. If you are still wondering if this right for you, it can be helpful to run some numbers. Your results should help you get an idea of whether the contract is a worthy investment.
Using the calculator
The calculator is very straightforward to use. It only requires some minor details about the investment to provide an accurate answer. Let’s review this together.
Step 1. On the first line of the calculator, please select your risk tolerance from the drop-down menu. You can select conservative, moderate, or aggressive.
Step 2. Include the account equity on the second line. This is the total value of the shares the contract.
Step 3. Finally, identify your initial risk. This figure is the premium you will pay for securing the contract.
Once this has been added to the questionnaire, you can view your results. There will be a smart prompt suggesting the number of contracts you should buy. There is also a visual representation of the capital that would be at risk by making this investment. You will have to weigh your risk against your position and potential profit to decide if this is right for you.
Remember to bookmark this page and save it to the home screen of your smartphone. You can return as you consider other investments. If you found this page useful, you can promote us on social media by using the share feature. Happy investing!