Identifier: C4T1L1 | Revision: 2026-10-26 | Planned study: 10–15 minutes, excluding extended practice.

Decision and objectives

Choose whether the method addresses this lesson’s task before placing an order. Objectives: 1. Translate a premium quotation into cash. 2. Identify contractual rights and settlement obligations. 3. Reject an incomplete order description.

Prerequisite: C3T7L5 and the completed earlier classes. Foundation: Stock Market School.

All numbers, quotes, contract terms and dates in the case are hypothetical teaching assumptions, not a listed series or offer. Unless varied below, options are European, expire together in 90 calendar days, are cash settled in TRY, and use 100 underlying units per contract. Premiums are TRY per underlying unit, paid at entry; signed quantities identify long (+) and short (−) legs. Assume no distributions and zero financing for the isolated payoff, no holiday adjustment, and final cash on the next business day. Actual tax is excluded, not assumed zero.

Mechanics

A call gives its buyer a right linked to buying the underlying at the strike; a put gives a right linked to selling it. The writer receives premium and accepts the corresponding obligation. Owning an option does not confer the underlying’s voting or dividend rights. The clearing arrangement stands between exchange participants, while the intermediary keeps the customer ledger. Identify underlying, option type, long or short direction, quantity, strike, expiry, exercise style and settlement before discussing a trade. A strike is a price per underlying unit, not a fee. A multiplier converts quoted units into contract cash.

Price and return drivers

Premium cash = contracts × units per contract × quoted premium. A minimum tick is the allowed quote increment; cash per tick also needs the multiplier. Changing a contract size through a corporate-action adjustment changes both exposure and cash conversion. Never copy the multiplier from a similar code. A price of 6 on a contract representing 100 units and a price of 0.60 on one representing 1000 units require the same premium, but their underlying exposures differ.

Worked case

An analyst receives the synthetic ticket “buy 2 calls, strike 100, 90-day expiry, premium 6, multiplier 100, European, TRY cash settlement.” Entry premium is 2 × 100 × 6 = TRY 1200. The assumed quote tick 0.05 converts to TRY 5 per contract and TRY 10 for two. An entry fee of TRY 12 brings cash committed to TRY 1212. If the expiry underlying fixing is 115, the right pays 2 × 100 × (115 − 100) = TRY 3000. Premium is not returned separately. With a TRY 12 settlement charge, net profit is 3000 − 1200 − 12 − 12 = TRY 1776.

Adverse case

The same ticket at expiry fixings 80, 100 and 115 pays respectively TRY 0, 0 and 3000, producing net results −1224, −1224 and +1776 under the stated fixed fees. An attractive underlying forecast can therefore coexist with total premium loss. Before expiry, a fixing is unavailable: an illustrative executable bid of 4.50 would instead produce closing proceeds 2 × 100 × 4.50 = TRY 900 and net −324 after the same total fees. That bid is a supplied scenario, not the expiry payoff or a theoretical guarantee.

Practical use

Before an order, match the code to underlying, multiplier, premium unit, exercise style and settlement; an absent field blocks a reproducible cash ticket.

For any actual domestic implementation, verify the exact issue/contract, authorized intermediary, account permission and executable size. Include spread, commissions, passed-through fees, funding/borrow, custody and exercise/exit costs without double-counting embedded charges. Recheck income year, residency/status, issue/acquisition dates and effective tax law; all case results remain before actual tax.

Decision boundaries

An order missing the settlement method is incomplete even when its premium is affordable. Physical delivery of these two calls would require TRY 20000 strike funding and receipt of 200 units if exercised; cash settlement only requires or pays the difference. Decline until the governing specification resolves the difference. Affordable premium does not establish adequate exercise cash. Keep a separate cash calendar for premium, fees, collateral and settlement.

Practice and references

Exercise: replace the ticket with 3 long puts at strike 100 and premium 4, multiplier 100. Total entry fee is TRY 15. Answer: premium 3 × 100 × 4 = TRY 1200; entry cash TRY 1215. At expiry fixing 90, gross settlement is 3 × 100 × 10 = TRY 3000. With a further TRY 15 settlement fee, net profit is TRY 1770. The put is an enforceable contractual right subject to the chosen settlement process, not a holding of 300 shares.

Takeaway: Translate every premium and tick with the exact multiplier, then distinguish physical strike cash from net cash settlement. Reference links: product card, formula; glossary: Call; Put; Strike; Option premium. Next: C4T1L2. Topic test.

Sources: Borsa Istanbul: Options (retrieved 2026-10-26; General information and basic concepts). Borsa Istanbul: Settlement Method (retrieved 2026-10-26; Settlement by contract family). Options Industry Council: All Strategies (retrieved 2026-10-26; Strategy descriptions). GIB: Provisional Article67 Guide for Individuals (retrieved 2026-10-26; Sections1,3–9 and19; publication introduction). Revision 2026-10-26; recheck changing terms before publication.

Shared reference guide