Equity Option Notional Can Use Spot or Strike Convention

Summary

The document explains two common ways to define notional for an equity option position. One convention multiplies the number of contracts by the current spot price and the contract multiplier; another uses the strike price in place of spot. Both approaches can be reasonable, so the appropriate measure depends on the market convention or reporting purpose being followed.

The example asks whether a stated notional should be divided by spot to estimate contract count, then multiplied by the option’s Black–Scholes value. The response says this is correct under the spot-based convention, while a strike-based calculation is also valid under the alternative convention. It does not establish which convention is standard across markets, nor does it expand on accounting treatment, contract multipliers, or how option value scales with notional. Readers should therefore confirm the definition required for their trading, valuation, or reporting context.

Key ideas

• Equity option notional may be defined using either spot price or strike price.
• Both conventions multiply the selected price by contracts and the contract multiplier.
• The correct contract count calculation depends on which notional convention applies.
• The source does not identify a universal market standard.

Tags

# Notional Value in Equity Options


# Notional Value in Equity Options












I have calculated the NPV of an Equity option and need to account the notional for it and have issues understanding the NPV <-> notional relation.

Example: Strike price 100 Spot rate: 107.41 NPV is 20.0344 using Black Scholes The notional is 900000

Is it correct to account the current spot rate for the amount of contracts: 900000 / 107.41 = 8379.109 times the NPV?

## Answer by mbison (score 0, accepted)

https://quant.stackexchange.com/a/22489

Not sure what the exact market convention is for equity options and notional value. To my knowledge people use it in 2 different ways, of which what you described is one way:

- notional = number contracts * spot * multiplier (what you said)

- notional = number contracts * strike * multiplier (other convention)

Both conventions make sense in their own right. So to answer your question, Yes what you proposed is correct. though the other solution using strike is also correct.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.