Premium Quotations
Chapters in this video
- 0:00 Trey the trader and the $2.00 exam trap
- 0:52 Premiums borrow the underlying futures price language
- 2:23 The point value multiplier and exchange rate analogy
- 3:27 Step-by-step conversion with illustrative $50 multiplier
- 4:14 Pause and calculate: same quote, $250 multiplier
- 5:08 Side-by-side comparison and why quotes mean nothing alone
- 5:55 Rapid-fire exam recap
What this video covers
- Why an options-on-futures premium is quoted in the underlying contract's own points and ticks, not in dollars
- The exact conversion formula: dollar cost equals quoted premium multiplied by the contract's point value (multiplier)
- Why the point value (multiplier) varies from one futures contract to the next and must be read from the exchange specifications
- How the same quoted 2.00 premium can mean $100 on one contract and $500 on another depending on the multiplier
- The exam's favorite trap: answer choices that present the raw quote as the dollar amount, skipping the conversion step
- The roles of buyer and grantor (writer) in the premium exchange, and why the quote is strictly per option
- How to treat a premium quote as a price tag in foreign currency and the point value as the exchange rate into dollars
Read the full lesson, free
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