BINARY RETURN DERIVATIVES NYSE ByRD Settlement Value And Settlement European style exercise Cash-settled No risk of buying or selling securities at expiration No additional transaction costs NYSE ByRD Settlement ValueSM The NYSE ByRD Settlement Value is found by calculating the value of each trade, then dividing the total value of all the trades by the total number of shares traded. Settlement Value is based on the all day NYSE ByRD Settlement Value of the underlying security on expiration Friday. The NYSE ByRD Settlement Value will be disseminated at least every 15 seconds on each trading day. The all day NYSE ByRD Settlement Value will most likely differ from the underlying equity closing price. The table below illustrates a 7 Trade NYSE ByRD Settlement Value example: SHARES PRICE VALUE 1 8000 $24.99 $199,920.00 2 100 $25.00 $2,500.00 3 1500 $24.98 $37,470.00 4 1300 $25.00 $32,500.00 5 300 $25.02 $7,506.00 6 2500 $25.01 $62,525.00 7 400 $25.00 $10,000.00 TOTAL NBSV* = Value / Shares 14100 NBSV* = $24.99 $352,421.00 *NYSE ByRD Settlement Value For a Finish High ByRDSM to be in-the-money, the expiration Friday NYSE ByRD Settlement Value must be above the strike price. For example: If the NYSE ByRD Settlement Value was $25.01 or higher, the $25.00 strike price Finish High ByRD would be in-the-money. If the expiration Friday NYSE ByRD Settlement Value was $25.00 or higher, the $25.00 strike price Finish Low ByRD would be out-of-the-money. For a Finish Low ByRDSM to be in-the-money, the expiration Friday NYSE ByRD Settlement Value must be below the strike price. For example: If the NYSE ByRD Settlement Value was $24.99 or lower, the $25.00 strike price Finish Low ByRD would be in-the-money. If the expiration Friday NYSE ByRD Settlement Value was $25.00 or less, the $25.00 strike price Finish High ByRD would be out-of-the-money. Settlement Mechanics ByRDs are European style, cash-settled and are automatically exercised if in-the-money on expiration Friday. The all day expiration Friday NYSE ByRD Settlement Value will most likely differ from the underlying equity closing price. Settlement example is based on the all day NYSE ByRD Settlement Value on expiration Friday. The table below illustrates the NYSE ByRD Settlement Value if the underlying had traded at only 4 prices during expiration Friday. Please note that this is highly unlikely: PRICE TOTAL SHARES TRADED TOTAL VALUE OF SHARES TRADED OPEN $24.75 x 10,000 = $247,500.00 HIGH $27.00 x 500 = $13,500.00 LOW $23.00 x 5,000 = $115,000.00 CLOSE $26.00 x 1,000 = $26,000.00 GRAND TOTAL NBSV* $24.36 16,500 $402,000.00 *NYSE ByRD Settlement Value Since the all day expiration Friday NYSE ByRD Settlement Value is $24.36, a Finish High $25.00 strike price ByRD would be out-of-the-money. Since the all day expiration Friday NYSE ByRD Settlement Value is $24.36, a Finish Low $25.00 strike price ByRD would be in-the-money. The NYSE ByRD Settlement Value and the closing price are different. The NYSE ByRD Settlement Value is $24.36 and the closing price of the underlying is $26.00 At expiration, the holder of an in-the-money ByRD will automatically receive $100.00 per contract. Based on the above example, the holder of the $25.00 strike price Finish High ByRD, would have an out-of-the money ByRD (NYSE ByRD Settlement Value of $24.36 is less than the $25.00 strike price) that would expire worthless. Based on the above example, the holder of the $25.00 strike price Finish Low ByRD would have an in-the money ByRD, (NYSE ByRD Settlement Value of $24.36 is less than the $25.00 strike price) and would automatically be credited $100.00 per contract. At expiration, the writer of an in-the-money ByRD will automatically be debited $100.00 per contract. Based on the above example, the writer of the $25.00 strike price Finish High ByRD, would have an out-of-the money ByRD, (NYSE ByRD Settlement Value of $24.36 is less than the $25.00 strike price) that would expire worthless. The writer would keep the proceeds of the sale. Based on the above example, the writer of the $25.00 strike price Finish Low ByRD, would have an in-the-money ByRD, (NYSE ByRD Settlement Value of $24.36 is less than the $25.00 strike price) and would automatically be debited $100.00 per contract. Disseminating the NYSE ByRD Settlement Value During the trading day, the NYSE ByRD Settlement Value calculation will be disseminated using a non-standard rounding procedure designed to insure that either the Finish High or the Finish Low ByRD, closes in-the-money. For example, a NYSE ByRD Settlement Value that calculates to $29.999999 will be disseminated as $29.99 and a NYSE ByRD Settlement Value that calculates to $30.000000 will be disseminated as $30.01. The final NYSE ByRD Settlement Value will be disseminated between 5:30 pm NYT and 6:00 pm NYT on the last trading day before expiration. A Comparison of ByRDs and Standard Listed Options Settlement One of the main differences between ByRDs, and standard listed equity options settlement is that ByRDs are European style and as a European style option contract, ByRDs, can only be exercised or assigned at expiration. Standard listed equity options are American style and may be exercised at any time during the life of the contract. Another important difference is that ByRDs are cash settled and automatically exercised when in-the-money at expiration, whereas standard listed equity options are settled by delivering or receiving securities. It is important to note that most standard listed equity options are American style and all are physical settlement. Upon exercise, a long standard call option holder will buy the underlying security and then must accept a new risk reward profile associated with the newly established long position or sell the underlying security. This buy and sell carries market risk and additional costs. With a Finish High ByRD, the holder receives $100.00 cash per contract, with no additional market risk. Conversely, upon assignment, a naked call writer assumes the unlimited risk associated with a short stock position or covers the short position and incurs the additional costs. The writer of a Finish High ByRD will be debited $100.00 per contract with none of the short position risk. When the holder of a standard long put contract exercises his put, he will either sell a position in the underlying security or assume the unlimited risk associated with a short stock position. The holder of an in-the-money Finish Low ByRD, will be credited $100.00 per contract upon exercise, and does not sell the underlying position or assume short stock risk. The writer or a standard listed equity put will, upon assignment, buy the underlying security accepting market risk, the writer of the Finish Low ByRD, is debited $100.00 per contract and assumed no additional risk. Since ByRDs are cash settled and automatically exercised, this means that when a ByRD, is in-the-money at expiration, the holder does not need to inform his broker of his intention to exercise. $25.00 STRIKE PRICE LISTED CALL NBSV* Above the strike price $25.01 CLOSING PRICE Above the strike price $25.01 NBSV* Below the strike price $24.99 CLOSING PRICE Below the strike price $24.99 NBSV* Above the strike price $25.01 CLOSING PRICE Below the strike price $24.99 NBSV* Below the strike price $24.99 CLOSING PRICE Above the strike price $25.01 *NYSE ByRD Settlement Value ITM = in-the-money OTM = out-of-the-money FINISH HIGH ByRD LISTED PUT ITM ITM OTM OTM OTM OTM ITM ITM ITM OTM OTM ITM OTM ITM FINISH LOW ByRD ITM OTM Summary: ByRDs, are European style exercise, which means that they can only be exercised or assigned on expiration. ByRDs, settlement on expiration Friday is based on an all day NYSE ByRD Settlement Value. The all day NYSE ByRD Settlement Value will be calculated during the trading day and will be disseminated at least every 15 seconds. Since the NYSE ByRD Settlement Value is a volume weighted average price it will most likely be different from the closing price of the underlying security. Therefore, it is possible for a standard listed call option to be in-the-money on expiration Friday based on the underlyings closing price and yet a Finish High ByRD, with the same strike price will be out-of-the-money based on the all day expiration Friday NYSE ByRD Settlement Value. Conversely, it is possible for the Finish High ByRD, to be in-the-money while the standard listed call option is out-of-the-money. It is important that investors understand this situation and set expiration Friday expectations accordingly. Exercise or assignment of standard listed calls and puts will result in the purchase or sale of securities at expiration. The resultant equity transaction will alter the original risk/reward parameters of the initial transaction. The subsequent closing of these transactions will add additional transaction costs, which will affect profits and losses. Since ByRDs are cash-settled, there is no risk of buying or selling securities at expiration and therefore no additional transaction costs. Disclaimer Copyright ©2014 NYSE Euronext. All rights reserved. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of NYSE Euronext. Binary Return DerivativesSM, ByRD SM, ByRDsSM, Finish High®, Finish High ByRDsSM, Finish Low®, Finish Low ByRDsSM, HiByRD SM, LoByRD SM and NYSE ByRD Settlement Value are service marks of NYSE Euronext or its affiliates. The information above has been prepared for illustrative, informational and/or educational purposes only, without regard to any particular investor’s objectives, financial situation or circumstances. Neither NYSE Euronext, nor any of its respective affiliates, officers, directors, employees, or agents are soliciting any action based on the foregoing, which is not to be construed as a recommendation, offer, or solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. Prior to the execution of a purchase or sale of any security or investment, you are advised to consult with your own advisors, as the above is not intended to be, nor shall it be construed to be, legal, tax, accounting or investment advice. www.nyse.com ©2014 Intercontinental Exchange All rights reserved rh/16154_03/140714
© Copyright 2024 ExpyDoc
