Keytrade LuxembourgTrading rules
Trading rules: US Options
1. Schedules
Options are negotiated on the US option markets during the regular opening hours of the US stock markets.
2. Type of option transactions
- Cash-settled options: at the exercise, there is no delivery of the underlying security but a cash payment of the positive difference (exercise settlement value) between the quote of the underlying value on the moment of calculation and the fixed exercise price.
Note : on the US option market all options on indices are cash-settled. - Physical delivery options: the holder of a long position for this type of contract has the right to receive (call) or to make (put) a physical delivery of the underlying interest.
3. Order transmission
According to Keytrade Bank’s general conditions - entirely applicable on option trading - customer’s orders to negotiate option contracts can only be transmitted through Keytrade Bank’s electronic routing system.
4. Features
Each option contract covers generally 100 underlying shares. However, the number of underlying assets can be adjusted due to certain events. Thus can stock dividends, stock distributions and stock splits result in an adjustment of the number of underlying shares, of the exercise price, or of both.
5. Option trading on US markets via Keytrade Bank
5.1. Keytrade Bank clients can trade only two types of options: equity securities options and options on stock indices.
Government debt securities options, foreign currencies options and Flexibly Structured Options are not negotiable via Keytrade Bank.
5.2. Keytrade trading platform for US options allows "long" positions, i.e. opening buy and closing sell.
"Short" positions (opening sell and closing buy), i.e. options written by customers, are possible under the following conditions:
- Writing index options is not possible.
- A call option writer must always have the underlying stocks in portfolio in order to be able to face the possible call option exercise (assignation). Underlying stocks will be blocked as a guarantee on the writer’s account as long as the option is not expired or bought back.
- A put option writer must always have in portfolio the necessary cash in order to face the possible put option exercise (assignation). The necessary cash will be blocked as a guarantee on the writer’s account as long as the option is not expired or bought back.
5.3. The types of orders available via Keytrade Bank’s system are "limit orders", with a "day" validity or "GTDT (Good Till Date of Trade)".
"Market" orders are not available for options because of the high volatility of the option prices!
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Notice concerning "limit" orders Limit orders price must be a multiple of USD 0.05 if the option quotes between 0 and USD 3 and a multiple of USD 0.10 if the option quotes more than USD 3. For example, an order with limit USD 2.34 will be rejected, but in the contrary be accepted with limit USD 2.30 or USD 2.35. In the same way, an order with limit USD 3.15 will be rejected but in the contrary accepted with limit USD 3.10 or USD 3.20. |
6. Option exercise (long position)
Keytrade Bank does not authorize its clients to exercise options. If the client has not sold his long position before the expiration date of the option, Keytrade Bank will automatically sell on expiration through the function "auto-sell" (see point 8 "Auto-Sell").
Only "cash settled options" will be automatically exercised as a cash settlement on the last day of exercise and if the options – after cost deduction – are beneficiary.
Furthermore, options that are "in the money" at the expiry will be exercised automatically for options on stocks if the value of the contract is at least USD 0.25 and for index options if the value of the contract is at least USD 0.02.
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Example: Call X 01/2099 with strike price 55 USD. If the options have not been sold on the last day, there are three possibilities:
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7. Option writer assignment (short position)
When a customer writes an option (opening sell), he might be assigned to face his engagements. The risk is this to have to sell at any moment underlying shares when a call was written or to have to buy underlying shares when a put was written.
Every day, Keytrade Bank receives from correspondents the number of contracts that have been assigned the day before. Keytrade Bank designates the customers who have to respect their engagements according to the LIFO system (Last In, First Out), which means that last opened positions will be assigned first.
In case of assignment, Keytrade Bank will buy or sell the underlying shares of the counterparty. The assigned positions and purchases or deliveries of underlying shares following the assignment, will be mentioned on account statements. The transaction date corresponds to the option exercise date, which is the working day before assignment.
In case the call option writer is assigned and does not have the total amount of stocks to be delivered, Keytrade Bank will buy for the customer at market price the balance of stocks necessary for the delivery.
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WARNING!
If you want to cancel a short position (opening sell) by purchasing the position (closing buy), the purchase must be distinguished from the initial option sale, which means the following risk for the customer: The customer has covered his option short position by purchasing the position on day D. However, an assignment was exercised the same day D by a counterparty that owns the same option written by the customer. Clearing can only inform Keytrade Bank on day D+1, date from which Keytrade assigns his customer to face his engagement in the option writing. Consequently, the customer can be assigned by the fact of his short position although he has covered his position by purchasing the position. THE CUSTOMER ACCEPTS THE RISK TO BE ASSIGNED AT ANY TIME, EVEN IF HE HAS ALREADY PURCHASED HIS POSITION. THE CUSTOMER ACCEPTS THE CONSEQUENCES OF THIS.8. Option expiry Option contracts always have a fixed expiration date (generally, the third Friday of the month). After this date, the option is worthless. |
8.1. Long position
In case of a cash-settled option, the client will be credited of the exercise settlement value less transaction costs and eventual taxes. The exercise settlement values are determined by the reporting authorities (Exchanges) in different ways.
In the case of a delivery contract, the client can only sell a long position and will not be able to exercise his option.
For a contract with possible delivery, the client has two choices:
- Sell
On the last transaction date, the sale must be done before the end of the option negotiation on the market. Afterwards it will be no more possible to sell a long position for this option which will expire worthless.
- Do not react (the option becomes worthless)
See point 6 par. 3.
Auto-sell
Each buy of an option (opening buy) is automatically and without any action taken by the client followed by an auto-sell. This means that automatically a sell order will be placed the last trading day.
This means that options coming to expiration and for which no sell order has been placed the last trading day, will be automatically sold at 5 pm (CET) at ‘market price’ but with NO guarantee to be executed.
WARNING ! The sell orders (closing sell) or buy orders (opening buy) in the customer’s portfolio and registered by the market, will remain under the responsibility of the customer until expiry of the concerned options. The "auto-sell" function will only be operational for those options for which the customer has placed no sell order. Your attention is particularly drawn to the fact that if these sell orders can not be executed before the expiry of the options, the latter will become worthless at expiry, except for the cases in which there is an automatic exercise as described in point 8.1.2) and if the option is "in the money" and there is enough cas in the account.
The deactivation by the customer of the "auto-sell" function does not prevent the customer from selling his options.
8.2. Short position
If the option sold by the customer (opening sell) is "in the money" at expiry, the customer will be assigned by the counterparty and he will have to deliver the underlying shares at strike price in case of a call option, or will have to buy the underlying shares at strike price in case of put option.
If the customer wants to avoid a possible assignment and its costs, he has to close his position by buying back the "short" option (closing buy) before the expiry of the option, with however the following risk:
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Even if a customer has covered his short position by buying back on day D, an assignment can be exercised the same day D by a counterparty which owns the same option. Clearing can only inform Keytrade Bank on day D+1, date from which Keytrade assigns his customer to face his engagement in the option writing. Consequently, the customer can be assigned by the fact of his short position even if he has covered his position by the position repurchase. THE CUSTOMER ACCEPTS THE RISK TO BE ASSIGNED AT ANY TIME, EVEN IF HE HAS ALREADY PURCHASED HIS POSITION. THE CUSTOMER ACCEPTS THE CONSEQUENCES OF THIS. |
9. Tariffs
+ fee : USD 2,5 per contract with an minimum of USD 19,95 for each operation.
10. Links
The customer recognizes the risks of option trading and recognizes having read and accepted the practical specifications and risks relating to the trading of options on U.S. Markets on the website www.cboe.com.
Remark :
If you wish to use the revenue of a sell, you must take into account the value date of the generated cash.
Value dates per market:
| Euronext (Brussels, Amsterdam, Paris) | D+3 |
| London stock exchange | D+3 |
| Milan | D+3 |
| Xetra (Franckfurt) | D+2 |
| Switzerland | D+3 |
| Madrid | D+3 |
| OMX (Helsinki, Stockholm, Copenhagen) | D+3 |
| US markets | D+3 |
| Canadian markets | D+3 |
| European options | D+1 |
| US options | D+1 |
| Funds | D+3 (the value date is stipulated by the issuer) |
| Bonds | D+3 |
| Currency exchange | D+2 |
