Nanos: A One-derful One-Multiplier Option
So, if someone asked you to describe an options “multiplier” — would you know how? For index options contracts, the index multiplier, sometimes referred to as a “multiplier,” is the number of underlying units the contract represents. Traditional index options have a 100-contract multiplier, so one option contract controls 100 units of the underlying index. Makes sense, right?
You might be saying, “Neat, but why should I care about a multiplier?” Remember, most index option contracts have a multiplier of 100, so you must do the math to determine the actual cash value of the contract. Then, you’ll understand just how much skin you have in the game!
(Quantity of contracts x Trade price x index multiplier = Total premium)
The 100-multiplier is well-known by long-time options traders. But some traders may wonder why they can't buy an option for $3.20 when that's the price they’re seeing on the screen. Well, it’s because it’ll actually cost $320 (due to that ol’ 100-multiplier).
A one-multiplier is pretty unique. Never in the history of standard listed index options in the United States have you been able to trade at the bid (ask) price that you see on the screen. Let that sink in. Nanos is the first one-multiplier option in the lengthy history of U.S. listed options trading. That means the price you see — approximately $3.20 for each at-the-money Nanos option — will be the price you pay or receive (plus applicable fees and commissions). Simple as that. This lower total price allows people who’ve been super intimidated by options (or who have smaller investable capital) to trade, all without having to commit large sums of money.
So yes, a single Nanos options contract is pretty low risk, but it also has lower profit potential than traditional 100-multiplier options. Let’s say you paid $3.20 for a NANOS call option, with a strike price of $430. At expiration, the index price is $440, meaning you make $6.80 (minus applicable fees and commissions). This is the difference from the index price and the strike price ($10) subtracted by the cost of the contract ($3.20).
($440-$430)-$3.20 = $6.80
For a 100-multiplier option, you might have a higher profit potential, but the investment at stake is much higher, too. Let’s take the same example above and consider what it might look like with a 100-multiplier.
Let’s say you paid $3.20 for a 100-multiplier call option, with a strike price of $430. But remember — everything is multiplied by 100, so the total cost of the contract is actually $320 ($3.20 x 100).
At expiration, the index price is still $440. In this example, you’d make $680 (minus applicable fees and commissions).
This is the difference from the index price ($440 x 100 underlying = $44,000) and the strike price ($430 x 100 underlying = $43,000) minus the cost of the contract ($3.20 x 100 = $320).
($44,000-$43,000)-$320 = $680
Here’s the big question — can you create more profits with more than one Nano? Yup, you can slowly increase the number of contracts as you get comfortable with trading and managing risk. For instance, the same scenario above with five Nanos contracts would net you $34 ($6.80 x 5 NANOS contracts) (minus applicable fees and commissions). But more contracts also creates higher risk and loss potential, which makes Nanos the ideal product if you want to start small.
Put most simply — because of its one-multiplier, trading Nanos provides the benefits of the larger, standard size contracts in a bite-size, affordable nugget. And we think that’s pretty tasty.
Options are not suitable for all investors. Before trading Nanos, you should discuss with your broker whether trading Nanos is right for you and review the Characteristics and Risks of Standardized Options (or Options Disclosure Document) regarding risks associated with trading options.
Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options (also referred to as the Options Disclosure Document or ODD). Copies of the ODD are available from your broker or from The Options Clearing Corporation, 125 S. Franklin Street, Suite 1200, Chicago, IL 60606 ([email protected]). The information in this document is provided for general education and information purposes only. No statement(s) within this document should be construed as a recommendation to buy or sell a security or to provide investment advice. Supporting documentation for any claims, comparisons, statistics, or other technical data in this document is available by contacting Cboe Global Markets at www.cboe.com/contact. Past performance is not predictive of future returns. Cboe®, Cboe Global Markets®, Cboe Volatility Index®, FLEX®, VIX®, and XSP® are registered trademarks and NanosSM, Nanos by CboeSM, Cboe NanosSM, Nanos OptionsSM, and Options InstituteSM are service marks of Cboe Exchange, Inc. or its affiliates. S&P 500® and SPX® are registered trademarks of Standard & Poor’s Financial Services, LLC and have been licensed for use by Cboe Exchange, Inc. All other trademarks and service marks are the property of their respective owners. © 2022 Cboe Exchange, Inc. All rights reserved.