What characterizes a trading unit for options?

What characterizes a trading unit for options?

• A. Share
• B. Contract
• C. Lot
• D. Dividend

Answer: (B)

A trading unit for options is characterized specifically by a contract. When dealing with options, each contract represents the right to buy or sell a specific number of underlying shares, typically 100 shares per contract for standard equity options. This structure allows investors to control a greater amount of underlying assets with a relatively smaller initial investment, which is a key feature of options trading.

In contrast, a share refers to a single unit of ownership in a stock; a lot is a term often used in other contexts to describe a set quantity of assets in trading, and dividends are payments made by a corporation to its shareholders from profits. Therefore, the focus on contracts as the trading unit of options is crucial, as it defines how options are structured and traded in the financial markets.