Description

Exchange traded fund options are standardized put and call options on underlying exchange traded funds (ETFs). ETFs are securities representing ownership in portfolios of assets designed with an objective to generally correspond to the price and yield performance of individual indexes.

Unit of Trade

Each standard contract represents 100 shares of the underlying ETF. Corporate actions, such as rights offerings, stock dividends, and mergers, can result in adjusted contracts representing something other than 100 shares of stock.

Premium Quotations

Stated in points. One point equals $100. Most ETF premiums are quoted in $.01 increments for options under $3 and $.05 increments for options over $3.

Strike Price Intervals

In general, ETF strikes will be listed in $1 increments. However, different exchange programs allow for strike-interval listing beyond the standard method. Some short-term options on ETFs will list strikes in $.50 intervals.

Exercise Style

American-style. Options may be exercised on any business day up to and including the expiration date.

Exercise Settlement Time

Exercise notices tendered on any business day will result in delivery of the underlying ETF on the third (T+3) business day following exercise.

Expiration Months

ETFs will list two consecutive near-term expiration months plus two successive months from the January, February or March cycle. LEAPS expirations may also be added. However, different exchange programs allow for expiration-month listing beyond the standard method.

Expiration Dates

Monthly options expire on the third Friday of the expiration month. Many products also list weekly options that expire on Fridays. If an exchange holiday occurs on that Friday, weekly options will expire on the preceding Thursday.

Position Limits

Limits vary according to the number of outstanding share and trading volume. Some ETF position limits may be higher than 250,000 contracts. Customer hedge exemptions are available. Investors may check Position Limit reports from OCC’s website for more information.

Minimum Customer Margin

Purchases of puts or calls with nine months or less until expiration must be paid for in full. Writers of uncovered puts or calls must deposit / maintain 100% of the option proceeds* plus 20% of the aggregate contract value (current equity price x $100) minus the amount by which the option is out-of-the-money, if any, subject to a minimum for calls of option proceeds* plus 10% of the aggregate contract value and a minimum for puts of option proceeds* plus 10% of the aggregate exercise price amount. Margin requirements for some broad-based ETFs may vary.

(*For calculating maintenance margin, use the option’s current market value instead of the option proceeds.)

Trading Hours

ETF options will trade the same hours as the underlying ETF. For most ETFs, this is 9:30 a.m. to 4:00 p.m. ET. For certain broad-based ETFs, 9:30 a.m. to 4:15 p.m. ET. Expiring weekly options on some broad-based ETF products may cease trading at 4 p.m. ET, or 15 minutes before the non-expiring options on that same class cease trading.