Listed options trading conditions
Saxo Bank operates two client margin profiles related to trading listed options1:
- Basic profile: the client can buy (hold) listed options
- Advanced profile: the client can buy (hold) and sell (write) listed options. The client will receive margin benefits when trading an option strategy and/or a portfolio of listed products, i.e. a combination of listed options and/or underlying instruments.
The client is setup on the basic profile by default, and therefore is not able to sell (write) listed options. Writing listed options requires the client fulfil the following requirements, in order to activate the advanced profile.
- The client must have a minimum account value of 5,000 USD, or equivalent
- The client must provide written acknowledgement of the risks involved with short selling (writing) options
|Strategy||Initial & maintenance margin|
|Out-of-the-money naked calls|
Call Price + Maximum((X%* Underlying Price) - Out of the Money Amount), (Y% * Underlying Price))
Out-of-the-Money Amount in case of a Call option equals: Max (0, Option Strike Price - Underlying Price)
Example:short 1 DTE jan14 12.50 Call at 0.08Spot at 12.30
(0.08*100shares)+((0.15*12.30)-(12.50-12.30)*100shares) 8€ of premium + 164.5€ of margin
|Uncovered put write|
Put Price + Maximum((X%* Underlying Price) - Out of the Money Amount), (Y% * Strike Price))
Example: short 1 DTE jan14 12 Put at 0.06Spot at 12.30
6€ of premium + 154.5€ of margin
|Bear call spread|
Maximum ((Strike Long Call - Strike Short Call), 0)
Example: short DTE Jan14 12.5 Call at 0.10 and long DTE Jan14 13.5 Call at 0.02
8€ of premium + 100€ of margin
Bull put spread
Example: Short DTE Jan14 Put 12 Put at 0.08 and long DTE Jan14 11 Put at 0.02
If Initial Margin Short Put > Initial Short Call, then
Corporate Actions on shares can affect any options that are listed on those shares. It might be required to adjust the option contracts in such way that the value of a position in such an option before and after the corporate action remains the same.
“Corporate Actions” shall mean a corporate event that may impact the share price/outstanding share amount of the relevant company. Corporate Actions include share issues, mergers, conversions, share splits, sell-offs and dividends;
“Ex-Date” shall mean the effective date of the Corporate Action, the date on which or the date after a security trades without its previously declared dividend or distribution.
Dealings between Saxo Bank and the client
The underlying stock can be subject to corporate actions. As a result of a corporate action, the Stock option contract might need to be adjusted. Various exchanges have different ways of treating corporate actions. The option exchanges will decide on case by case bases how a corporate action will affect the option contract and positions on the option contracts.
The two common methods for adjustment are the ‘Ratio Method’ and the ‘Package Method’. Saxo Bank will follow the exchange notice in regards to applying the adjustment on the option series and the client’s position. However Saxo Bank reserve the right to close out clients open positions prior to an option adjustment on ex-date if a corporate action adjustment is not supported by Saxo Bank.
An example is when an underlying deliverable for the adjusted option contract can be a basket of securities and cash components. Especially for spin-offs and demergers, the corporate action could result into a basket of deliverables where the original option contract would settle into a number of deliverable components. The option contracts by themselves do not need to be adjusted in case of this method; instead the underlying deliverable is redefined. Whenever the underlying deliverable is redefined either as a basket/package containing multiple components, or any ratio of underlying shares, Saxo Bank will not support the action and will close out any open client positions.
Holders of a long position in American Style options can exercise the option any time prior to expiry, except on the last trading day. To exercise a long option position, an exercise request can be entered in the trading application; in the "Account Summary".
When the exercise request is entered, the option position is closed at price 0 and a position in the underlying instrument is created at the strike price. This happens instantly.
Clients should always consider closing the option position in the market and acquiring the underlying instrument separately. Often the market value of the option exceeds the unrealized profit from opening the underlying position at the strike price.
Currency options on CME are not allowed to be exercised out of the money, hence these requests will be cancelled once encountered.