FOUR PRIMARY UNDERLYING ASSETS #
- Stock options: Typically exchange traded, American– style
- Currency options: Majority of currency options are traded on the OTC market, while the remainder are exchange traded. Investors holding currency options receive the right to buy or sell an amount of foreign currency based on a domestic currency amount.
- Index options: index options can be found on both the OTC markets and exchange traded markets. These are typically European style options and are cash settled.
- Futures options: American style, exchange traded options most often utilized for futures contract.
STOCK OPTIONS SPECIFICATIONS #
NON STANDARD PRODUCTS #
- FLEX options: Exchange traded options that allow some alteration of the options contract specifications.
- ETF options: American style option, actual delivery of shares rather than cash settlement.
- Weekly options: Short term options created on Thursday & have expiration on Friday of next week.
- Binary options: The payoff is either some fixed monetary amount or nothing at all.
- CEBO: Payoff is triggered on the occurrence of a qualifying credit-event (ex– bankruptcy) prior to the options expiration date.
- DOOM options: Put options are structured to only be in the money in the event of a large downward price movement in the underlying asset.
STOCK SPLITS & DIVIDENDS #
- Stock splits: Options are adjusted for stock splits. If a stock experiences b-for -a stock split, the strike price becomes (a/b) of its previous value and the number of shares underlying the option is increased by multiples of (b/a).
- Stock dividends: Deals in the same manner as stock splits.
- Option dividends: Options are not adjusted for cash dividends. Option pricing consequences are incorporated into the valuation model.
POSITION & EXERCISE LIMITS #
Position limit: Max number of options a trader can have on one stock.
Exercise limit: A restriction on the amount of option contract of a single class that any one trader can exercise within a fixed time period (5 consecutive business days).