Hi Every body !
I am little confused as to the term Notional Exposure in Systematic Option Trading. Is there any article which will explain Notional Exposure in simplest manner and practical use of it with simple example ? I am new to option trading.
Hi Vivek,
The notional value (or notional amount) is the total value of the assets you have the right to buy. If the strike price is $42, and each option contract controls 100 shares, the notional value is $42 x 100 = $4,200.
Even though you only paid a small amount (the option premium) to buy the option, you have exposure to the movements in the stock price as if you were holding $4,200 worth of the stock. This is your notional exposure.
If the stock price goes up or down, the value of your option will change as if you were holding $4,200 worth of the stock, even though you didn’t actually invest that much money upfront.
You can check the following link if you need more examples.
Thanks so much Mr.Rechit Pachanekar !! it is pleasure to see answer against my question. You have explained in a very simple way citing good example. I got clear picture of notional exposure. Thanks again.