Quick Answer
Options-on-futures premiums are quoted in the same points and ticks as the underlying futures, not in dollars. To find the dollar cost, multiply the quoted premium by the contract's point value, the multiplier set by the exchange. That multiplier varies from one futures contract to the next, so read it from the specs.
You know what a premium is and what moves it. The last piece is reading the quote itself, because a quoted premium is a number in the futures' own points, not a dollar figure you can pay as-is.
How Premiums Are Quoted
An options-on-futures premium borrows the price language of the contract it sits on.
- A premium is stated in the price points (and minimum ticks) of the underlying futures, not directly in dollars.
- The quote is per-option: the buyer pays it and the grantor (writer) receives it.
- Because the quote rides the underlying futures' points, the same "2.00" means different money on different contracts until you convert it.
Converting a Quote to Dollars
Turning a quote into cash takes one multiplication, using a number that belongs to the specific contract.
- Dollar cost of the option quoted premium the contract's point value (multiplier).
- The point value (multiplier) is the dollar amount of a one-point move in that specific contract. It is set by the exchange and varies by contract, so read it from the contract's specifications rather than assuming one fixed number.
Example (illustrative multiplier only): if a premium is quoted at 2.00 points and the contract's point value is $50 per point, the option costs 2.00 times $50, or $100. That same 2.00-point premium on a contract with a $250 point value would cost $500.
Note: these point-value figures are illustrative only. The multiplier differs from one futures contract to the next, so do not memorize the amounts. The exam tests the mechanics of the conversion, not a specific number.
Think of it this way: a premium quote is a price tag written in the contract's own currency, and the point value is the exchange rate into dollars. Read "2.00" straight off the tag as two dollars and you are reading the wrong currency. You have to run it through that contract's rate first, and every contract sets its own rate.
Exam Tip: Gotchas
- A premium quote is not a dollar amount until you multiply by the contract's point value. Do not read "premium of 2.00" as $2.00. Convert it with the correct multiplier, which differs from one futures contract to the next. A choice that treats the raw quote as the dollar cost is skipping the conversion.