What's a Lot?

12/31/2015 8:00 am EST

Focus: OPTIONS

For the benefit of the newbie unfamiliar or still learning trading terminology, the staff at Investopedia.com defines the term “lot” and illustrates why it plays such a vital role in the realm of options.

The term “lot” refers to any group of goods or services that make up a transaction.

In investing, a lot is the standardized quantity of a financial instrument, such as a stock or bond, that an exchange or regulatory body defines. The lot is the number of shares purchased in one transaction. An investor may buy one lot of stocks in ABC Corporation, and that lot may represent 100 shares, for example.

Also, options are usually priced so that each contract, or each lot, represents exercise rights for 100 underlying shares of common stock. By standardizing price quotes, investors know how many underlying shares they’re buying with each lot and how much they cost. If the lots weren’t standardized, option trading would be much more cumbersome.

In another context, a lot represents a single group of items. They are usually comprised of the same class, model, or version of a product and are made under the same circumstances and intended to perform similar functions. For example, a warehouse may store one lot of the same goods or different lots of varied goods.

By the staff at Investopedia.com

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