2009年第四四半期、特定の米国オプション取引所(CBOEおよびISE)において、「プロフェッショナル」(ブローカーディーラーと同じような方法で取引を行うことのできる情報および/またはテクノロジーにアクセスのある個人や機関)とみなされる一般顧客からの注文を区別する規則が実施されました。これに基づき、ブローカーディーラーではなく、特定の月に自身の口座のために毎日平均で390以上の上場オプション注文(約定したかどうかに関わらず)をすべてのオプション取引所に発注する口座は、プロフェッショナルとみなされるようになります。CBOEおよびISEによる初回の実施以降、その他ほとんどの米国オプション取引所においても、「プロフェッショナル」注文の区別が実施されるようになりました。
プロフェッショナルのお客様の代理としてこれらオプション取引所に発注される注文は約定の優先を目的とし、ブローカーディーラーとして取り扱われ、リベート($0.65)から$1.12の手数料(オプションクラスにより)の範囲内で、コントラクトあたりの手数料の対象となります。
ブローカーは暦四半期ごとにレビューを行い、この期間中の1ヶ月間に390注文の枠を超え、次の暦四半期にプロフェッショナルとして指定されるべき顧客を割り出すことが義務付けられています。この確認の際、スプレッド注文はスプレッドの各レッグを個別の注文として数えるのではなく、スプレッド注文ごとにひとつの注文として数えます。これによる影響のあるお客様には弊社よりご連絡を差し上げます。またスマートルーティング注文は、新しく発生する取引所手数料を考慮の上でルーティング先を決定するようにデザインされています。
詳細は以下のリンクをご覧ください:
How are executions allocated when an order receives a partial fill because an insufficient quantity is available to complete the allocation of shares/contracts to sub-accounts?
Overview:
From time-to-time, one may experience an allocation order which is partially executed and is canceled prior to being completed (i.e. market closes, contract expires, halts due to news, prices move in an unfavorable direction, etc.). In such cases, IB determines which customers (who were originally included in the order group and/or profile) will receive the executed shares/contracts. The methodology used by IB to impartially determine who receives the shares/contacts in the event of a partial fill is described in this article.
Background:
Before placing an order CTAs and FAs are given the ability to predetermine the method by which an execution is to be allocated amongst client accounts. They can do so by first creating a group (i.e. ratio/percentage) or profile (i.e. specific amount) wherein a distinct number of shares/contracts are specified per client account (i.e. pre-trade allocation). These amounts can be prearranged based on certain account values including the clients’ Net Liquidation Total, Available Equity, etc., or indicated prior to the order execution using Ratios, Percentages, etc. Each group and/or profile is generally created with the assumption that the order will be executed in full. However, as we will see, this is not always the case. Therefore, we are providing examples that describe and demonstrate the process used to allocate partial executions with pre-defined groups and/or profiles and how the allocations are determined.
Here is the list of allocation methods with brief descriptions about how they work.
· AvailableEquity
Use sub account’ available equality value as ratio.
· NetLiq
Use subaccount’ net liquidation value as ratio
· EqualQuantity
Same ratio for each account
· PctChange1:Portion of the allocation logic is in Trader Workstation (the initial calculation of the desired quantities per account).
· Profile
The ratio is prescribed by the user
· Inline Profile
The ratio is prescribed by the user.
· Model1:
Roughly speaking, we use each account NLV in the model as the desired ratio. It is possible to dynamically add (invest) or remove (divest) accounts to/from a model, which can change allocation of the existing orders.
Basic Examples:
Details:
CTA/FA has 3-clients with a predefined profile titled “XYZ commodities” for orders of 50 contracts which (upon execution) are allocated as follows:
Account (A) = 25 contracts
Account (B) = 15 contracts
Account (C) = 10 contracts
Example #1:
CTA/FA creates a DAY order to buy 50 Sept 2016 XYZ future contracts and specifies “XYZ commodities” as the predefined allocation profile. Upon transmission at 10 am (ET) the order begins to execute2but in very small portions and over a very long period of time. At 2 pm (ET) the order is canceled prior to being executed in full. As a result, only a portion of the order is filled (i.e., 7 of the 50 contracts are filled or 14%). For each account the system initially allocates by rounding fractional amounts down to whole numbers:
Account (A) = 14% of 25 = 3.5 rounded down to 3
Account (B) = 14% of 15 = 2.1 rounded down to 2
Account (C) = 14% of 10 = 1.4 rounded down to 1
To Summarize:
A: initially receives 3 contracts, which is 3/25 of desired (fill ratio = 0.12)
B: initially receives 2 contracts, which is 2/15 of desired (fill ratio = 0.134)
C: initially receives 1 contract, which is 1/10 of desired (fill ratio = 0.10)
The system then allocates the next (and final) contract to an account with the smallest ratio (i.e. Account C which currently has a ratio of 0.10).
A: final allocation of 3 contracts, which is 3/25 of desired (fill ratio = 0.12)
B: final allocation of 2 contracts, which is 2/15 of desired (fill ratio = 0.134)
C: final allocation of 2 contract, which is 2/10 of desired (fill ratio = 0.20)
The execution(s) received have now been allocated in full.
Example #2:
CTA/FA creates a DAY order to buy 50 Sept 2016 XYZ future contracts and specifies “XYZ commodities” as the predefined allocation profile. Upon transmission at 11 am (ET) the order begins to be filled3 but in very small portions and over a very long period of time. At 1 pm (ET) the order is canceled prior being executed in full. As a result, only a portion of the order is executed (i.e., 5 of the 50 contracts are filled or 10%).For each account, the system initially allocates by rounding fractional amounts down to whole numbers:
Account (A) = 10% of 25 = 2.5 rounded down to 2
Account (B) = 10% of 15 = 1.5 rounded down to 1
Account (C) = 10% of 10 = 1 (no rounding necessary)
To Summarize:
A: initially receives 2 contracts, which is 2/25 of desired (fill ratio = 0.08)
B: initially receives 1 contract, which is 1/15 of desired (fill ratio = 0.067)
C: initially receives 1 contract, which is 1/10 of desired (fill ratio = 0.10)
The system then allocates the next (and final) contract to an account with the smallest ratio (i.e. to Account B which currently has a ratio of 0.067).
A: final allocation of 2 contracts, which is 2/25 of desired (fill ratio = 0.08)
B: final allocation of 2 contracts, which is 2/15 of desired (fill ratio = 0.134)
C: final allocation of 1 contract, which is 1/10 of desired (fill ratio = 0.10)
The execution(s) received have now been allocated in full.
Example #3:
CTA/FA creates a DAY order to buy 50 Sept 2016 XYZ future contracts and specifies “XYZ commodities” as the predefined allocation profile. Upon transmission at 11 am (ET) the order begins to be executed2 but in very small portions and over a very long period of time. At 12 pm (ET) the order is canceled prior to being executed in full. As a result, only a portion of the order is filled (i.e., 3 of the 50 contracts are filled or 6%). Normally the system initially allocates by rounding fractional amounts down to whole numbers, however for a fill size of less than 4 shares/contracts, IB first allocates based on the following random allocation methodology.
In this case, since the fill size is 3, we skip the rounding fractional amounts down.
For the first share/contract, all A, B and C have the same initial fill ratio and fill quantity, so we randomly pick an account and allocate this share/contract. The system randomly chose account A for allocation of the first share/contract.
To Summarize3:
A: initially receives 1 contract, which is 1/25 of desired (fill ratio = 0.04)
B: initially receives 0 contracts, which is 0/15 of desired (fill ratio = 0.00)
C: initially receives 0 contracts, which is 0/10 of desired (fill ratio = 0.00)
Next, the system will perform a random allocation amongst the remaining accounts (in this case accounts B & C, each with an equal probability) to determine who will receive the next share/contract.
The system randomly chose account B for allocation of the second share/contract.
A: 1 contract, which is 1/25 of desired (fill ratio = 0.04)
B: 1 contract, which is 1/15 of desired (fill ratio = 0.067)
C: 0 contracts, which is 0/10 of desired (fill ratio = 0.00)
The system then allocates the final [3] share/contract to an account(s) with the smallest ratio (i.e. Account C which currently has a ratio of 0.00).
A: final allocation of 1 contract, which is 1/25 of desired (fill ratio = 0.04)
B: final allocation of 1 contract, which is 1/15 of desired (fill ratio = 0.067)
C: final allocation of 1 contract, which is 1/10 of desired (fill ratio = 0.10)
The execution(s) received have now been allocated in full.
Available allocation Flags
Besides the allocation methods above, user can choose the following flags, which also influence the allocation:
· Strict per-account allocation.
For the initially submitted order if one or more subaccounts are rejected by the credit checking, we reject the whole order.
· “Close positions first”1.This is the default handling mode for all orders which close a position (whether or not they are also opening position on the other side or not). The calculation are slightly different and ensure that we do not start opening position for one account if another account still has a position to close, except in few more complex cases.
Other factor affects allocations:
1) Mutual Fund: the allocation has two steps. The first execution report is received before market open. We allocate based onMonetaryValue for buy order and MonetaryValueShares for sell order. Later, when second execution report which has the NetAssetValue comes, we do the final allocation based on first allocation report.
2) Allocate in Lot Size: if a user chooses (thru account config) to prefer whole-lot allocations for stocks, the calculations are more complex and will be described in the next version of this document.
3) Combo allocation1: we allocate combo trades as a unit, resulting in slightly different calculations.
4) Long/short split1: applied to orders for stocks, warrants or structured products. When allocating long sell orders, we only allocate to accounts which have long position: resulting in calculations being more complex.
5) For non-guaranteed smart combo: we do allocation by each leg instead of combo.
6) In case of trade bust or correction1: the allocations are adjusted using more complex logic.
7) Account exclusion1: Some subaccounts could be excluded from allocation for the following reasons, no trading permission, employee restriction, broker restriction, RejectIfOpening, prop account restrictions, dynamic size violation, MoneyMarketRules restriction for mutual fund. We do not allocate to excluded accountsand we cancel the order after other accounts are filled. In case of partial restriction (e.g. account is permitted to close but not to open, or account has enough excess liquidity only for a portion of the desired position).
Footnotes:
U.S. equity markets occasionally experience periods of extraordinary volatility and price dislocation. Sometimes these occurrences are prolonged and at other times they are of very short duration. Stop orders may play a role in contributing to downward price pressure and market volatility and may result in executions at prices very far from the trigger price.
INTRODUCTION
Option exercise limits, along with position limits (See KB1252), have been in place since the inception of standardized trading of U.S. securities options. Their purpose is to prevent manipulative actions in underlying securities (e.g., corners or squeezes) as well as disruptions in option markets where illiquidity in a given option class exists. These limits serve to prohibit an account, along with its related accounts, from cumulatively exercising within any five consecutive business day period, a number of options contracts in excess of the defined limit for a given equity options class (i.e., option contracts associated with a particular underlying security). This includes both early exercises and expiration exercises.
OVERVIEW
U.S. securities option exercise limits are established by FINRA and the U.S. options exchanges. The exercise limits are generally the same as position limits and they can vary by option class as they take into consideration factors such as the number of shares outstanding and trading volume of the underlying security. Limits are also subject to adjustment and therefore can vary over time. The Options Clearing Corporation (OCC), the central clearinghouse for U.S. exchange traded securities options, publishes a daily file with these limits on its public website. The link is as follows: http://www.optionsclearing.com/webapps/position-limits. FINRA Rule 2360(b)(4) addresses exercise limits and can be found via the following website link: http://finra.complinet.com/en/display/display.html?rbid=2403&record_id=16126&element_id=6306&highlight=2360#r16126).
Note that exercise limits are applied based upon the the side of the market represented by the option position. Accordingly, all exercises of call options over the past five business days are aggregated for purposes of determining the limit for the purposes of purchasing the underlying security. Similarly, a separate computation whereby all put exercises over the past five business days are aggregated is required for purposes of determining sales of the underlying.
IMPORTANT INFORMATION
It's important to note that while exercise limits may be set at levels identical to position limits, it is possible for an account holder to reach an exercise limit without violating positions limits for a given option class. This is because exercise limits are cumulative and one could conceivably purchase options up to the position limit, exercise those options and purchase additional options which, if allowed to be exercised within the five business day window, would exceed the limit.
Account holders are responsible for monitoring their cumulative options exercises as well as the exercise limit quantities to ensure compliance. In addition, IB reserves the right to prohibit the exercise of any options, regardless of their intrinsic value or remaining maturity, if the effect of that exercise would be to violate the exercise limit rule.
概要
満期前の株式コールオプションの権利行使は、以下の点により通常は経済的利点がありません:
しかしながら、支払や借入、ダウンサイドのマーケットリスク増加に対応できる口座保有者にとって、アメリカンスタイルのコールオプションの早期権利行使は支払予定の配当金の受け取りが可能なため、経済的利点が発生する可能性があります。
背景
配当金は割り当て日の株式保有者に対して支払われるため、コールオプションの保有者への支払はありません。その他の条件が同じ場合、株価は配当落ち日に配当金分、下落します。オプション価格理論上、コールオプションの価格は限月中、配当金支払い見込みが反映されたものとなりますが、配当落ち日に下落することがあります。この様なシナリオで早期権利行使が好まれる条件は以下のような場合です:
1. オプションがディープ・イン・ザ・マネーでデルタが100
2. オプションのタイムバリューが少額、もしくはゼロ
3. 配当金が比較的高く、配当落ち日がオプション満期日の前にある
例
早期権利行使の影響を例にして見てみます。口座の現金残高が$9,000であり、架空の株式ABCのロング・コール(権利行使価格$90.00)が10日後に満期を迎えると仮定します。ABCの株価は$100.00、配当金額は1株あたり$2.00、権利落ち日は明日であるとします。また、オプション価格と株価の動向は類似しており、権利落ち後に配当金額分下落すると仮定します。
100株のデルタポジションを、パリティ価格でのオプションの売却とパリティ価格以上でのオプションの売却の二つのオプション価格をを想定し、資産の最大化を査定します。
シナリオ1:オプション価格がパリティの時 - $10.00
パリティ価格でオプションが取引されている場合、株式が配当落ち後に資金に変わる際、早期権利行使でポジションデルタを維持し、ロングオプションの損失を避けます。現金は権利行使価格で株式を購入するために使用され、オプションプレミアムは喪失し、株式および配当金受取は口座に反映されます。これは配当落ち日の前にオプションを売却し、株式を購入することで達成できますが、手数用およびスプレッドも考慮してください:
シナリオ1 | ||||
口座 バランス |
当初 バランス |
早期 権利行使 |
アクション 無し |
オプション売 &株式買 |
現金 | $9,000 | $0 | $9,000 | $0 |
オプション | $1,000 | $0 | $800 | $0 |
株式 | $0 | $9,800 | $0 | $9,800 |
配当金受取 | $0 | $200 | $0 | $200 |
資産合計 | $10,000 | $10,000 | $9,800 | $10,000 |
シナリオ2:オプション価格がパリティ価格より上の時 - $11.00
パリティ価格以上でオプションが取り引きされる場合、配当金確保のための早期権利行使には経済的利点がない場合があります。このシナリオでは早期権利行使によりオプション・タイムバリューに$100の損失が発生しますが、オプションを売却して株式を購入した場合、手数料を差し引いた結果、アクションを取らない方がかえって良い可能性もあります。この場合、最も好まれるアクションはオプションを取らないことです。
シナリオ2 | ||||
口座 バランス |
当初 バランス |
早期 権利行使 |
アクション 無し |
オプション売 |
現金 | $9,000 | $0 | $9,000 | $100 |
オプション | $1,100 | $0 | $900 | $0 |
株式 | $0 | $9,800 | $0 | $9,800 |
配当金受取 | $0 | $200 | $0 | $200 |
資産合計 | $10,100 | $10,000 | $9,900 | $10,100 |
注意: ロングコール・ポジションをスプレッド取引の一部として保有している場合には、ショートポジションの割り当てが発生した際に、ロングポジションの権利行使を行わないリスクに特に注意を払う必要があります。割り当て日に株式ショートポジションを保有していて、ショートコールの割り当てが発生した場合、株式の貸し手に配当金を支払う義務が発生しますのでご注意ください。また、権利行使処理を行うクリアリング機関は、割り当ての対応として権利行使処理を行いません。
例:SPDR S&P 500 ETF Trust(SPY)のショート100枚(March '13 権利行使$146)とロング100枚(March '13 権利行使$147)を含むクレジットコール(ベア)スプレッドを例にとって考えて見ます。2013年3月14日に1株あたり$0.69372の配当金が発表されたとします。2013年3月19日付で、20134月30日支払の配当金支払見込みが株主の口座に反映されました。米国株式の3営業日決済により、配当金を受け取るには2013年3月14日までに株式の購入、もしくはコールオプションの権利行使を行わなければなりません。それ以降は配当落ち株式となります。
2013年3月14日には満期まで取引日が1日しか残されていません。二つのオプションはパリティ価格で取引され、1枚当たり$100、または100枚のポジションに$10,00の最大リスクが伴います。しかし、配当金の受け取りと、配当金受取を見込んだ、相手方の割り当てからの保護としてのロングコールの権利行使に失敗するとショートコール割り当てに対する配当金支払い義務が発生し、1枚当たり$67.372、または100枚のポジションに$6,737.20の追加のリスクが発生します。以下の表の通り、ショートコール・オプションの割り当てが発生しなかった場合、ポジションの最終決済価格が2013年3月15日に決定し、最大損失リスクは1枚あたり$100に留まります。
期日 | SPY 終値 | March '13 $146 コール | March '13 $147 コール |
March 14, 2013 | $156.73 | $10.73 | $9.83 |
March 15, 2013 | $155.83 | $9.73 | $8.83 |
お持ちのお口座が米国債ルール871(m)により米国源泉徴収税の対象となっている場合、権利落ち日前に一度ロングポジションをクローズし、権利落ち日後に再度オープンされることにより、効果的に作用する可能性があります。
早期権利行使通知の提出方法については弊社ウェブサイトをご確認ください。
このページは情報提供のみを目的とするものであり、推奨や取引アドバイスではなく、早期権利行使がすべてのお客様やトレーダーに適していることを結論付けるものではありません。口座を保有されるお客様は専門の税理士にご相談の上、早期権利行使による課税への影響をご確認ください。また、ロングポジションの変わりに株式ポジションを保有するにあたって発生する可能性のあるリスクにご注意ください。
リアルタイムの証拠金不足にあたってクライアントのポジションを強制決済するポリシーに加え、IBでは過度のリスクや運用上の懸念につながるイベントに関連する満期やコーポレートアクションに基づいてポジションの強制決済を行います。 下記はその例になります。
オプション権利行使
権利行使や割当てによって口座に証拠金不足が発生する場合、IBでは株式オプションの権利行使および/またはショートオプションのクローズを禁止する権利を有します。ポジションは全額の支払いとなるため通常オプションの購入に証拠金は必要ありませんが、権利行使され次第、その後のロング株式ポジションを全額支払うか(キャッシュ口座内のコールが権利行使される、または株式の証拠金が100%になる場合)、ロング/ショート株式ポジションの融資(マージン口座内のコール/プットが権利行使される場合)が義務となります。 権利行使前に十分な資産のない口座は、引渡しによって原資産の価格が不利に変化した場合、過度なリスクにつながります。無担保の場合のリスクは特に顕著であり、クリアリングハウスが株あたり$0.01のイン・ザ・マネーレベルでオプションを自動的に権利行使する際の満期の際には特にロングオプションが保有していた可能性のあるイン・ザ・マネーの価値を大幅に超える可能性があります。
ここでは原資産が$51のコントラクトを満期に1枚当たり$1でクローズした仮想の株式XYZを例にとります。1日目における口座資産は権利行使価格が$50のコールオプションがロングで20のみです。シナリオ1ではオプションがすべて自動で権利行使され、2日目に$51で開始すると仮定します。シナリオ2ではオプションがすべて自動で権利行使され、2日目に$48で開始すると仮定します。
口座残高 | 満期前 | シナリオ 1 - XYZが$51で開始 | シナリオ 2 - XYZが$48で開始 |
---|---|---|---|
キャッシュ | $0.00 | ($100,000.00) | ($100,000.00) |
ロング株式 | $0.00 | $102,000.00 | $96,000.00 |
ロングオプション* |
$2,000.00 | $0.00 | $0.00 |
流動性総資産/(不足) | $2,000.00 | $2,000.00 | ($4,000.00) |
必要証拠金 | $0.00 | $25,500.00 | $25,500.00 |
証拠金超過分/(不足) | $0.00 | ($23,500.00) | ($29,500.00) |
*ロングオプションには貸出価値がありません。
満期を迎えた時点でこのような状況を回避するため、IBでは妥当な原資産価格シナリオの想定と、株式引き渡しの前提で各口座のエクスポージャーの査定を行うことによって、満期による営業をシミュレーションします。エクスポージャーが過度であると判断された場合、IBは以下のいずれかを行う権利を有します: 1) 権利行使前にオプションを強制決済する、2) オプションを失効させる、および/または 3) 原資産の引渡しと共生決済をいつでもできるように許可する。 さらにエクスポージャーの増加を避けるため、新しいポジションのオープンに対する規制が口座にかけられることがあります。IBでは満期日の取引終了後間もなくIB /自動権利行使によって失効することになるコントラクトの枚数を割り出します。その日の取引時間後に行われた取引の影響はエクスポージャーの計算に入らないことがあります。
弊社ではこういった作業を行う権利を有していますが、口座内のポジションに関連する権利行使/割当てリスクの管理は口座を保有される方の責任になります。IBではこのようなリスクを管理する義務を負いません。
弊社ではまた決済が証拠金不足につながるとシステムが予想した場合、決済前の午後にポジションの強制決済を行う権利を有します。満期を迎えた時点でこのような状況を回避するため、IBでは妥当な原資産価格シナリオの想定と、決済後の各口座のエクスポージャーの査定を行うことによって、満期による営業をシミュレーションします。 例:決済の結果ポジションが口座から削除されると考えられる場合(ポジションがアウト・オブ・ザ・マネーで満期になる場合や、現金決済されたオプションがイン・ザ・マネーで満期になる場合)、IBのシステムが該当する決済の証拠金に対する影響を査定します。
エクスポージャーが過度であると考えられる場合、弊社では予想される証拠金付属を解消するために口座内のポジションを強制決済することがあります。 満期に関連する証拠金のエクスポージャーは、TWS内の口座ウィンドウより確認することができます。予想される証拠金不足は「満期後証拠金」(下記をご覧ください)の行に表示されます。値がマイナスかつ赤でハイライトされる場合には口座のポジションが強制決済される可能性を意味します。エクスポージャーの計算は次の満期の3日前に計算され、15分ごとにアップデートされます。 体系が段階的になっている口座の場合(セパレート・トレーディング・リミット口座など)、これは計算が集約されるマスター口座レベルのみに表示されます。
弊社では通常、終了時2時間前に満期関連の強制決済を始めますが、状況が確実である場合には2時間前の前後に強制決済を開始する権利を有します。強制決済はさらに流動性総資産価値や満期後に予想される不足額、ならびにオプション権利行使価格と原資産の関係などを含める口座特有の基準に基づいて優先順位がつけられます。
権利落ち日前のコール・スプレッド
権利落ち日前に原資産にコールスプレッド(同じ原資産のロングとショートコール)を保有されていて、かつスプレッドの強制決済をされていない、またはロングコールの権利行使をされていない場合、弊社では以下を行う権利を有します:i)ロングコールを部分的またはすべて権利行使する、および/またはii)以下が予想される場合にはIBの裁量によりスプレッドを部分的またはすべて強制決済(クローズ処理を意味します)する: a)ショートコールが割り当てられる可能性がある、およびb)配当金を支払う義務を満たすに足る資産が口座にないか、一般的に必要証拠金を満たしていない。 このシナリオでIBがロングコールを権利行使し、お客様にショートコールを割当てられてない場合、損失がお客様に発生する可能性があります。同様にお客様のポジションをIBが部分的またはすべて強制決済する場合、お客様に損失が発生する、または当初の目的と異なる投資結果となる可能性があります。
このシナリオを避けるため、原資産の権利落ち日前にオプションのポジションと口座資産を注意深くご確認いただき、またこれに基づいてリスクと口座管理を行ってください。
実際に引渡しされる先物
原資産に通貨を含む特定の先物コントラクト以外、IBでは実際に決済された先物や先物オプションコントラクトの原資産の引渡しを許可していません。満期になるコントラクトの引渡しを避けるため、コントラクトをロールオーバーするか、コントラクトに指定される最終取引期限前(ウェブサイトにリストがあります)にポジションのクローズを行う必要があります。
最終取引期限および実際に引渡しされるコントラクトで指定されている時間内に最終取引されないものをIBが事前通知なく強制決済する可能性を認識しておいていただくことはお客様の責任となります。
Financial instruments are subject to minimum price changes or increments which are commonly referred to as ticks. Tick values vary by instrument and are determined by the listing exchange. IB provides this information directly from the Contract Search tool on the website or via the Trader Workstation (TWS). To access from TWS, enter a symbol on the quote line, right click and from the drop-down window select the Contract Info and then Details menu options. The contract specifications window for the instrument will then be displayed (Exhibit 1).
To determine the notional value of a tick, multiple the tick increment by the contract trade unit or multiplier. As illustrated in the example below, the LIFFE Mini Silver futures contact has a tick value or minimum increment of .001 which, when multiplied by the contract multiplier of 1,000 ounces, results in a minimum tick value of $1.00 per contract. Accordingly, every tick change up or down results in a profit or loss of $1.00 per LIFFE Mini Silver futures contract.
Exhibit 1
INTRODUCTION
Exercising an equity call option prior to expiration ordinarily provides no economic benefit as:
Nonetheless, for account holders who have the capacity to meet an increased capital or borrowing requirement and potentially greater downside market risk, it can be economically beneficial to request early exercise of an American Style call option in order to capture an upcoming dividend.
BACKGROUND
As background, the owner of a call option is not entitled to receive a dividend on the underlying stock as this dividend only accrues to the holders of stock as of its dividend Record Date. All other things being equal, the price of the stock should decline by an amount equal to the dividend on the Ex-Dividend date. While option pricing theory suggests that the call price will reflect the discounted value of expected dividends paid throughout its duration, it may decline as well on the Ex-Dividend date. The conditions which make this scenario most likely and the early exercise decision favorable are as follows:
1. The option is deep-in-the-money and has a delta of 100;
2. The option has little or no time value;
3. The dividend is relatively high and its Ex-Date precedes the option expiration date.
EXAMPLES
To illustrate the impact of these conditions upon the early exercise decision, consider an account maintaining a long cash balance of $9,000 and a long call position in hypothetical stock “ABC” having a strike price of $90.00 and time to expiration of 10 days. ABC, currently trading at $100.00, has declared a dividend of $2.00 per share with tomorrow being the Ex-Dividend date. Also assume that the option price and stock price behave similarly and decline by the dividend amount on the Ex-Date.
Here, we will review the exercise decision with the intent of maintaining the 100 share delta position and maximizing total equity using two option price assumptions, one in which the option is selling at parity and another above parity.
SCENARIO 1: Option Price At Parity - $10.00
In the case of an option trading at parity, early exercise will serve to maintain the position delta and avoid the loss of value in long option when the stock trades ex-dividend, to preserve equity. Here the cash proceeds are applied in their entirety to buy the stock at the strike, the option premium is forfeited and the stock (net of dividend) and dividend receivable are credited to the account. If you aim for the same end result by selling the option prior to the Ex-Dividend date and purchasing the stock, remember to factor in commissions/spreads:
SCENARIO 1 | ||||
Account Components |
Beginning Balance |
Early Exercise |
No Action |
Sell Option & Buy Stock |
Cash | $9,000 | $0 | $9,000 | $0 |
Option | $1,000 | $0 | $800 | $0 |
Stock | $0 | $9,800 | $0 | $9,800 |
Dividend Receivable | $0 | $200 | $0 | $200 |
Total Equity | $10,000 | $10,000 | $9,800 | $10,000 less commissions/spreads |
SCENARIO 2: Option Price Above Parity - $11.00
In the case of an option trading above parity, early exercise to capture the dividend may not be economically beneficial. In this scenario, early exercise would result in a loss of $100 in option time value, while selling the option and buying the stock, after commissions, may be less beneficial than taking no action. In this scenario, the preferable action would be No Action.
SCENARIO 2 | ||||
Account Components |
Beginning Balance |
Early Exercise |
No Action |
Sell Option & Buy Stock |
Cash | $9,000 | $0 | $9,000 | $100 |
Option | $1,100 | $0 | $1,100 | $0 |
Stock | $0 | $9,800 | $0 | $9,800 |
Dividend Receivable | $0 | $200 | $0 | $200 |
Total Equity | $10,100 | $10,000 | $10,100 | $10,100 less commissions/spreads |
NOTE:
Options have two components that make up their total premium value - intrinsic value and time value. The intrinsic value is the amount by which the option is in-the-money, while the time value represents the possibility that the option could become even more profitable before expiration as the underlying asset price fluctuates while providing protection against adverse moves.
Many options are American-style, which means they can be exercised early, ahead of their expiration date. Early exercise of an option eliminates the remaining time value component from the option's premium, since the option holder loses protection against unfavorable movements in the underlying asset’s price.
This makes early exercise suboptimal in most situations, as the option holder is willingly forfeiting a portion of the option's value.
There are a few specific circumstances where early exercise could make sense, such as:
The first case, exercising an in the money call immediately ahead of a dividend payment, is the most common economically-sensible early exercise. In most cases, it is advisable to hold or sell the option instead of exercising it early, in order to capture the remaining time value. An option should only be exercised early after carefully considering all factors and determining that the benefits of early exercise outweigh the time value being surrendered.
Account holders holding a long call position as part of a spread should pay particular attention to the risks of not exercising the long leg given the likelihood of being assigned on the short leg. Note that the assignment of a short call results in a short stock position and holders of short stock positions as of a dividend Record Date are obligated to pay the dividend to the lender of the shares. In addition, the clearinghouse processing cycle for exercise notices does not accommodate submission of exercise notices in response to assignment.
As example, consider a credit call (bear) spread on the SPDR S&P 500 ETF Trust (SPY) consisting of 100 short contracts in the March '13 $146 strike and 100 long contracts in the March '13 $147 strike. On 3/14/13, with the SPY Trust declared a dividend of $0.69372 per share, payable 4/30/13 to shareholders of record as of 3/19/13. Given the 3 business day settlement time frame for U.S. stocks, one would have had to buy the stock or exercise the call no later than 3/14/13 in order receive the dividend, as the next day the stock began trading Ex-Dividend.
On 3/14/13, with one trading day left prior to expiration, the two option contracts traded at parity, suggesting maximum risk of $100 per contract or $10,000 on the 100 contract position. However, the failure to exercise the long contract in order to capture the dividend and protect against the likely assignment on the short contracts by others seeking the dividend created an additional risk of $67.372 per contract or $6,737.20 on the position representing the dividend obligation were all short calls assigned. As reflected on the table below, had the short option leg not been assigned, the maximum risk when the final contract settlement prices were determined on 3/15/13 would have remained at $100 per contract.
Date | SPY Close | March '13 $146 Call | March '13 $147 Call |
March 14, 2013 | $156.73 | $10.73 | $9.83 |
March 15, 2013 | $155.83 | $9.73 | $8.83 |
Please note that if your account is subject to tax withholding requirements of the US Treasure rule 871(m), it may be beneficial to close a long option position before the ex-dividend date and re-open the position after ex-dividend.
For information regarding how to submit an early exercise notice please click here.
The above article is provided for information purposes only as is not intended as a recommendation, trading advice nor does it constitute a conclusion that early exercise will be successful or appropriate for all customers or trades. Account holders should consult with a tax specialist to determine what, if any, tax consequences may result from early exercise and should pay particular attention to the potential risks of substituting a long option position with a long stock position.
IBKR's option commission charge consists of two parts:
1. The execution fee which accrues to IBKR. For Smart Routed orders this fee is set at $0.65 per contract, reduced to as low as $0.15 per contract for orders in excess of 100,000 contracts in a given month (see website for costs on Direct Routed orders, reduced rates on low premium options and minimum order charges); and
2. Third party exchange, regulatory and/or transaction fees.
In the case of third party fees, certain U.S. option exchanges maintain a liquidity fee/rebate structure which, when aggregated with the IBKR execution fee and any other regulatory and/or transaction fees, may result in an overall per contract commission charge that varies from one order to another. This is attributable to the exchange portion of the calculation, the result of which may be a payment to the customer rather than a fee, and which depends upon a number of factors outside of IBKR's control including the customer's order attributes and the prevailing bid-ask quotes.
Exchanges which operate under this liquidity fee/rebate model charge a fee for orders which serve to remove liquidity (i.e., marketable orders) and provide a credit for orders which add liquidity (i.e., limit orders which are not marketable). Fees can vary by exchange, customer type (e.g., public, broker-dealer, firm, market maker, professional), and option underlying with public customer rebates (credits) generally ranging from $0.10 - $0.90 and public customer fees from $0.01 - $0.95.
IBKR is obligated to route marketable option orders to the exchange providing the best execution price and the Smart Router takes into consideration liquidity removal fees when determining which exchange to route the order to when the inside market is shared by multiple (i.e., will route the order to the exchange with the lowest or no fee). Accordingly, the Smart Router will only route a market order to an exchange which charges a higher fee if they can better the market by at least $0.01 (which, given the standard option multiplier of 100 would result in price improvement of $1.00 which is greater than the largest liquidity removal fee).
For additional information on the concept of adding/removing liquidity, including examples, please refer to KB201.