Options trading markets

PREPARED BY: WALID SAAFAN

Options trading markets Financial Derivatives - Assignment 1

Arab Academy for Science and Technology Under supervision of Dr. Ahmed Bahaa

5/9/2009

This document present an example of option trading market including its listing regulation and a sample terms for three traded option contracts

Options trading markets

Prepared by: Walid Saafan | CHICAGO BOARD OPTIONS EXCHANGE CBOE 2

CHICAGO BOARD OPTIONS EXCHANGE CBOE On April 26, 1973, the CBOE pioneered the concept of standardized, listed stock options to be traded on a centralized,

regulated marketplace. Listing call options on just 16 stocks, CBOE traded 911 contracts on that first day of business. In

1977, put options were introduced.

The CBOE's 45,000 square-foot trading floor opened for trading in February of 1984. The exchange is cabled with more

than 50,000 miles of electrical wire, most of it beneath the trading floor. There is enough phone cable to serve a city of

200,000 people; and more information display screens under one roof than any other building in the world. The

concentration of technology requires as much electricity as the nearby 110-story Sears Tower.

The Options Clearing Corporation is the sole issuer of all securities options listed at the CBOE, four other U.S. stock

exchanges and the National Association of Securities Dealers, Inc. (NASD), and is the entity through which all CBOE

option transactions are ultimately cleared. As the issuer of all options, OCC essentially takes the opposite side of every

option traded. Because OCC basically becomes the buyer for every seller and the seller for every buyer, it allows options

traders to buy and sell in a secondary market without having to find the original opposite party.

The OCC substantially reduces the credit risk aspect of trading securities options as the OCC requires that every buyer

and every seller have a clearing member and that both sides of the transaction are matched. It also has the authority to

make margin calls on firms during the trading day. The OCC has a AAA credit rating from Standard & Poor's Corporation.

Listing requirements Among the requirements a company must satisfy is “distribution”. There must be a certain number of outstanding

shares, and the shares must be owned by a minimum number of people. Otherwise, ownership of the stock is deemed

“too highly concentrated”. The NYSE and NASDAQ also have listing requirements.

The contract size of an option refers to the amount of the underlying asset covered by the options contract. For each

unadjusted equity call or put option, 100 shares of stock will change hands when one contract is exercised by its owner.

These 100 shares of underlying stock are also referred to as the contract's "unit of trade."

The contract size of a cash-settled index option is determined by its multiplier. The multiplier determines the aggregate

value of each point of the difference between the exercise price of the option and the exercise settlement value of the

underlying interest. For example, a multiplier of 100 means that for each point by which a cash-settled option is in the

money upon exercise, there is a $100 increase in the cash settlement amount.

Options trading markets

Prepared by: Walid Saafan | South African Future Exchange SAFex 3

South African Future Exchange SAFex

Listing requirements

Listing of new foreign referenced commodity derivatives will be done on request from the market. However, these securities must comply with the requirements prescribed by the JSE. The requirements include-

the underlying security must be an internationally listed instrument;

a committed Liquidity Provider; and

the availability of a reference price on day of listing and prices thereafter.

Trading calendar JSE MARKETS CALENDAR 2009

Month Week Mon Tues Wed Thurs Fri Sat Sun

Dec/Jan 53 29 30 31 1 2 3 4

Jan 1 5 6 7 8 9 10 11

Jan 2 12 13 14 15 16 17 18

Jan 3 19 20 21 22 23 24 25

Jan/Feb 4 26 27 28 29 30 31 1

Feb 5 2 3 4 5 6 7 8

Feb 6 9 10 11 12 13 14 15

Feb 7 16 17 18 19 20 21 22

Feb/Mar 8 23 24 25 26 27 28 1

Mar 9 2 3 4 5 6 7 8

Mar 10 9 10 11 12 13 14 15

Mar 11 16 17 18 19 20 21 22

Mar 12 23 24 25 26 27 28 29

Mar/Apr 13 30 31 1 2 3 4 5

Apr 14 6 7 8 9 10 11 12

Apr 15 13 14 15 16 17 18 19

Apr 16 20 21 22 23 24 25 26

Apr/May 17 27 28 29 30 1 2 3

May 18 4 5 6 7 8 9 10

May 19 11 12 13 14 15 16 17

May 20 18 19 20 21 22 23 24

May 21 25 26 27 28 29 30 31

June 22 1 2 3 4 5 6 7

June 23 8 9 10 11 12 13 14

June 24 15 16 17 18 19 20 21

June 25 22 23 24 25 26 27 28

June/July 26 29 30 1 2 3 4 5

July 27 6 7 8 9 10 11 12

July 28 13 14 15 16 17 18 19

July 29 20 21 22 23 24 25 26

July/Aug 30 27 28 29 30 31 1 2

Aug 31 3 4 5 6 7 8 9

Aug 32 10 11 12 13 14 15 16

Aug 33 17 18 19 20 21 22 23

Aug 34 24 25 26 27 28 29 30

Aug/Sept 35 31 1 2 3 4 5 6

Sept 36 7 8 9 10 11 12 13

Options trading markets

Prepared by: Walid Saafan | South African Future Exchange SAFex 4

Sept 37 14 15 16 17 18 19 20

Sept 38 21 22 23 24 25 26 27

Sep/Oct 39 28 29 30 1 2 3 4

Oct 40 5 6 7 8 9 10 11

Oct 41 12 13 14 15 16 17 18

Oct 42 19 20 21 22 23 24 25

Oct/Nov 43 26 27 28 29 30 31 1

Nov 44 2 3 4 5 6 7 8

Nov 45 9 10 11 12 13 14 15

Nov 46 16 17 18 19 20 21 22

Nov 47 23 24 25 26 27 28 29

Nov/Dec 48 30 1 2 3 4 5 6

Dec 49 7 8 9 10 11 12 13

Dec 50 14 15 16 17 18 19 20

Dec 51 21 22 23 24 25 26 27

Dec/Jan 52 28 29 30 31 1 2 3

Public

Holidays

Equity

Derivative Close Out

BDA

Month-end

SWIFT

Cut-over dates

Bond

Futures Close Out

APD

Last Trading

Day

Currency

Future and

Single

Stock Option Expiry

Dates

Options trading markets

Prepared by: Walid Saafan | NYSE Euronext 5

NYSE Euronext Euronext is a regulated market. Companies listed on Euronext are only subject to a number of rules decreed by the EU

and applicable to all regulated markets within the EU. This harmonised environment, particularly in terms of financial

reporting and accounting standards, provides direct access to a very large base of investors.

For greater clarity, Euronext is segmented according to market capitalisation:

• Compartment A: companies with a market capitalization of more than €1 billion;

• Compartment B: companies valued between €150 million and €1 billion;

• Compartment C: companies with a market capitalization of less than €150 million.

Regulations The Regulation section gathers the rules issued by Euronext as market operator to frame the organisation of the

European markets of NYSE Euronext. There are two types of regulated markets organised by Euronext:

The Securities Markets (markets of stocks, bonds, warrants, trackers, structured funds, certificates), also known as the

Cash markets, organised in Amsterdam, Brussels, Lisbon and Paris

The Derivatives Markets (markets of options, futures, swaps,…) also known as the Liffe Markets, organised in

Amsterdam, Brussels, Lisbon, London and Paris.

Options trading markets

Prepared by: Walid Saafan | NYSE Euronext 6

While the majority of the rules are harmonized and therefore applicable in all the locations (Amsterdam, Brussels,

Lisbon, London and Paris), some are still non harmonized and therefore different from one location to another.

The Euronext rules provided in this section are without prejudice to the provisions of the EU regulations and the

relevant National regulations (Belgian, French, Dutch, Portuguese and UK) applicable to the Euronext Market

Undertaking organising such markets and to the companies listed on these markets and the members active on those

ones.

Notices/Instructions implement the provisions of the Rule Books.

Euronext Cash regulation

This subsection gathers the Euronext rules applicable to the Euronext Cash/Securities Markets. While some rules are

harmonized and applicable in all the locations, others are only applicable in the location concerned. The rules contained

in the Rule Book I are harmonized and thus applicable in all the cash market places (Amsterdam, Brussels, Lisbon and

Paris). The Rule Book II contains rules that have not been harmonized in all the locations and therefore are different in

each market place.

The Rule Books (I and II) and the Notices/Instructions are applicable to the Regulated Markets.

The Trading Manual gathers the rules applicable to the trading in the Euronext Cash/Securities Markets.

The rules applicable to Multilateral Trading Facilities (MTF) in the meaning of the MiFID (Market in Financial Instruments

Directive) are presented under the form of Organisational notas for each MTF. The rules of the MTF may refer to rules

applicable to the Regulated markets.

Euronext Derivatives regulation

This subsection gathers the Euronext rules applicable to the Derivatives markets. These markets are Regulated Markets

in the meaning of the MiFID (Market in Financial Instruments Directive).

While some rules applicable to those markets are harmonized, others are applicable only in the location concerned. The

rules contained in the Rule Book I are harmonized and thus applicable in all the derivatives market places (Amsterdam,

Brussels, Lisbon, London and Paris). The Rule Book II contains rules that have not been harmonized in all the locations

and therefore exist in Amsterdam, Brussels, Lisbon, London and Paris.

The Trading Procedures gathers the rules applicable to the trading in the Derivatives markets for both all the locations

and for each location.

http://www.euronext.com/tools/documentation/wide/documents-2958-EN.html

Options trading markets

Prepared by: Walid Saafan | NYSE Euronext 7

Main contracts by volume

Main contracts by volume

08/05/09

Name Market Code Vol. O.I.

ING GROEP AMS ING 132,358 3,867,311

AEGON AMS AGN 102,094 2,293,628

FORTIS AMS FOR 78,262 2,307,150

KON. PHILIPS ELECTRONICS AMS PHI 46,862 1,252,135

ROYAL DUTCH SHELL A AMS RD 40,457 2,329,032

AXA PAR CS1 39,912 1,309,935

ARCELOR MITTAL AMS MT 35,958 541,310

UNILEVER AMS UN 26,036 1,379,910

KON. AHOLD AMS AH 22,879 856,005

KON. KPN AMS KPN 15,588 1,582,740

Vol - (Volume) is the number of contracts traded in the most recent transaction.

Day's Volume - Number of trades that have taken place so far in the trading day. This figure updates as the day progresses and more trades take place.

%+/- Percentage price of last trade compared to yesterday's settlement price.

Settl - The previous day's settlement price.

O.I. - (Open Interest) is the outstanding long and short positions of the previous trading day updated in the morning each day

Options trading markets

Prepared by: Walid Saafan | NYSE Euronext 8

Product information

Codes and classification

Mnemo ING Market Liffe Amsterdam Vol. 93,688 06/05/09

Exercise type American Currency € O.I. 3,794,357

Underlying ING GROEP ISIN NL0000303600 Market Euronext Amsterdam

Currency € Last 7.72 06/05/09 17:36 Last change % 0.52 Volume 24,280,468.00 Best bid 7.72 06/05/09 17:38 Best ask 7.725 06/05/09 17:38

Dutch Stock Options

Contract size 100 shares

Expiry months 1,2,3 monthly; 3,6,9,12 quarterly (March, June, September, December); 18 half yearly (June, December) and 12, 24, 36, 48, 60 yearly (December). See ‘Related documentation’ below to find out which expiry months are listed per stock.

Quotation Euros per share

Minimum price movement (tick size and value)

€0.05 / €5

Exercise day Exercise by 19.15 Amsterdam time on any business day, extended to 19.45 Amsterdam time on the Last Trading Day

Last trading day Until 17.30 Amsterdam time on the third Friday of the expiry month, provided this is a business day. If not, the last day of trading is the last business day preceding the third Friday in the expiry month.

Settlement Delivery of 100 shares through the settlement system of LCH.Clearnet SA.

Trading hours 9.01 - 17.30 Amsterdam time

Exercise American

Related documentation

O classes (23/06/08)

Expiry months listed per contract (04/07/08)

Last update 25/04/08

Options trading markets

Prepared by: Walid Saafan | NYSE Euronext 9

Options trading markets

Prepared by: Walid Saafan | NYSE Euronext 10

Codes and classification

Mnemo AGN Market Liffe Amsterdam Vol. 41,160 05/05/09

Exercise type American Currency € O.I. 2,259,108

Underlying AEGON ISIN NL0000303709 Market Euronext Amsterdam

Currency € Last 4.262 05/05/09 17:39 Last change % 0.52 Volume 19,656,884.00 Best bid 4.262 05/05/09 17:40 Best ask 4.263 05/05/09 17:40

Dutch Stock Options

Contract size 100 shares

Expiry months 1,2,3 monthly; 3,6,9,12 quarterly (March, June, September, December); 18 half yearly (June, December) and 12, 24, 36, 48, 60 yearly (December). See ‘Related documentation’ below to find out which expiry months are listed per stock.

Quotation Euros per share

Minimum price movement (tick size and value)

€0.05 / €5

Exercise day Exercise by 19.15 Amsterdam time on any business day, extended to 19.45 Amsterdam time on the Last Trading Day

Last trading day Until 17.30 Amsterdam time on the third Friday of the expiry month, provided this is a business day. If not, the last day of trading is the last business day preceding the third Friday in the expiry month.

Settlement Delivery of 100 shares through the settlement system of LCH.Clearnet SA.

Trading hours 9.01 - 17.30 Amsterdam time

Exercise American

Related documentation

O classes (23/06/08)

Expiry months listed per contract (04/07/08)

Last update 25/04/08

Options trading markets

Prepared by: Walid Saafan | NYSE Euronext 11

Options trading markets

Prepared by: Walid Saafan | NYSE Euronext 12

Codes and classification

Mnemo FOR Market Liffe Amsterdam Vol. 9,810 06/05/09

Exercise type American Currency € O.I. 2,290,450

Underlying FORTIS ISIN BE0003801181 Market Euronext Brussels

Currency € Last 1.854 06/05/09 13:13 Last change % 3.00 Volume 12,296,775.00 Best bid 1.854 06/05/09 13:13 Best ask 1.858 06/05/09 13:13

Dutch Stock Options

Contract size 100 shares

Expiry months 1,2,3 monthly; 3,6,9,12 quarterly (March, June, September, December); 18 half yearly (June, December) and 12, 24, 36, 48, 60 yearly (December). See ‘Related documentation’ below to find out which expiry months are listed per stock.

Quotation Euros per share

Minimum price movement (tick size and value)

€0.05 / €5

Exercise day Exercise by 19.15 Amsterdam time on any business day, extended to 19.45 Amsterdam time on the Last Trading Day

Last trading day Until 17.30 Amsterdam time on the third Friday of the expiry month, provided this is a business day. If not, the last day of trading is the last business day preceding the third Friday in the expiry month.

Settlement Delivery of 100 shares through the settlement system of LCH.Clearnet SA.

Trading hours 9.01 - 17.30 Amsterdam time

Exercise American

Related documentation

O classes (23/06/08)

Expiry months listed per contract (04/07/08)

Last update 25/04/08

Options trading markets

Prepared by: Walid Saafan | 13