BINARY RETURN DERIVATIVES
Key Concepts and Definitions
Binary Return Derivatives (ByRDs)SM
Settlement Value
Binary Return Derivatives (ByRDs) are “binary” options with a
per-contract fixed return amount of $100.00. Binary Return
Derivatives will be offered in two forms:
ƒƒ Settlement value is the value used on expiration Friday to
determine if a ByRD is in-the-money or out-of-the-money.
Settlement is based on the all day NYSE ByRD Settlement Value
of the underlying security on expiration Friday. The NYSE ByRD
Settlement Value will be disseminated at least every 15 seconds
every trading day.
Finish High ByRDSM
ƒƒ A Finish High ByRD is similar to a standard listed call option
in that an investor purchasing a Finish High ByRD is bullish on
the underlying security. Each long contract returns $100.00
if the NYSE ByRD Settlement ValueSM closes above the strike
price on expiration Friday.
Finish Low ByRDSM
ƒƒ A Finish Low ByRD is similar to a standard listed put option in
that an investor purchasing a Finish Low ByRD is bearish on
the underlying security. Each long contract returns $100.00 if
the NYSE ByRD Settlement Value closes below the strike price
on expiration Friday
Key Concepts
ƒƒ Exchange listed & traded
ƒƒ OCC (Options Clearing Corp) cleared and settled
ƒƒ Can be opened or closed at any time during the life of the
contract
ƒƒ ByRDs trade in $0.01 increments
ƒƒ Weekly expirations are available
ƒƒ $1.00 strike price increments
ƒƒ Symbols differ from standard listed options
ƒƒ Multiplier is 100
Settlement
ƒƒ European style i.e. exercisable only at expiration.
ƒƒ Cash-settled.
ƒƒ Automatically exercised if in-the-money at expiration.
ƒƒ In-the-money:
ƒƒ Finish High – For a Finish High ByRD to be in-the-money, the
expiration Friday NYSE ByRD Settlement Value must be above
the strike price.
--For example, if the NYSE ByRD Settlement Value was $25.01
or higher, the $25.00 strike price Finish High ByRD would be
in-the-money.
ƒƒ Finish Low - For a Finish Low ByRD to be in-the-money, the
expiration Friday NYSE ByRD Settlement Value must be below
the strike price.
--For example, if the NYSE ByRD Settlement Value was $24.99
or lower, the $25.00 strike price Finish Low ByRD would be
in-the-money.
ƒƒ Out-of-the-money:
ƒƒ Finish High – If the expiration Friday NYSE ByRD Settlement
Value was $25.00 or less, the $25.00 strike price Finish High
ByRD would be out-of-the-money.
ƒƒ Finish Low - If the expiration Friday NYSE ByRD Settlement
Value was $25.00 or higher, the $25.00 strike price Finish Low
ByRD would be out-of-the-money.
ƒƒ At expiration, the holder of an in-the-money ByRD will
automatically receive $100.00 per contract.
ƒƒ At expiration, the writer of an in-the-money ByRD will
automatically be debited $100.00 per contract.
ƒƒ At expiration, the holder of an out-of-the-money ByRD
will receive $0.00 per contract.
ƒƒ At expiration, the writer of an out-or-the-money ByRD
will be debited $0.00 per contract.
Position Limits
NYSE ByRD Settlement Value
ƒƒ 25,000 contracts ($2.5 million) on the same side of the market.
ƒƒ The NYSE ByRD Settlement Value is found by calculating
the value of each trade, then dividing the total value of all the
trades by the total number of shares traded. The NYSE ByRD
Settlement Value will most likely differ from the closing price.
ƒƒ Not to be aggregated with position limits of standard options on
the same underlying.
Margin
The table below is an example of a seven trade NYSE ByRD
Settlement Value.
ƒƒ Long positions must be paid in full.
ƒƒ Short positions will require margin equal to the difference
between $100.00 and the proceeds received from selling the
ByRD, plus the proceeds received.
SHARES
1
PRICE
VALUE
8000
$24.99
2
100
$25.00
$2,500.00
3
1500
$24.98
$37,470.00
4
1300
$25.00
$32,500.00
5
300
$25.02
$7,506.00
6
2500
$25.01
$62,525.00
7
400
$25.00
$10,000.00
TOTAL
$199,920.00
14100
$352,421.00
NBSV* = Value/Shares
*NBSV = $24.99
*NYSE ByRD Settlement Value
Maximum Gains and Losses
The table below illustrates the similarities and differences in maximum gains and losses that exist with standard listed options and ByRDs.
MAX. GAIN
MAX. LOSS
LONG CALL
Unlimited
Premium paid
LONG FINISH HIGH BYRD
$100.00 - Premium paid
Premium paid
LONG PUT
Strike price - the premium paid
Premium paid
LONG FINISH LOW BYRD
$100.00 - Premium paid
Premium paid
SHORT CALL
Premium recd.
Unlimited
SHORT FINISH HIGH BYRD
Premium recd.
$100.00 - Premium recd.
SHORT PUT
Premium recd.
Strike price - the premium recd.
SHORT FINISH LOW BYRD
Premium recd.
$100.00 - Premium recd.
A Comparison of Key Concepts
BYRDS
FINISH HIGH
STANDARD LISTED EQUITY OPTIONS
FINISH LOW
CALLS
PUTS
SETTLEMENT VALUE
All day expiration day NBSV*
Based on the underlying closing price
SETTLEMENT STYLE
European, cash settled
American, physical settlement
LONG POSITION MAXIMUM PROFIT
$100 less the premium paid
Unlimited
LONG POSITION MAXIMUM LOSS
The premium paid
The premium paid
SHORT POSITION MAXIMUM PROFIT
The proceeds received
The proceeds received
SHORT POSITION MAXIMUM LOSS
$100 less the premium received
Unlimited
LONG POSITION MARGIN
Long positions must be paid in full
Long positions must be paid in full
SHORT POSITION MARGIN
$100 less the premium received (the premium
must remain in the account)
20% of the value of the underlying + the
premium received. Brokerage house
requirements may differ
*NYSE ByRD Settlement Value
The strike price less
the premium paid
The strike price less
the premium received
Summary:
Although ByRDs and standard listed options share many of the same features, there are significant differences in the settlement process
and profit and loss characteristics. ByRDs are cash-settled, European style and are automatically exercised if in-the-money at expiration.
Standard listed equity options are physically settled, American style and must be exercised by the holder. A long standard listed call
option has unlimited profit potential above breakeven until expiration. A Finish High ByRD has a maximum settlement value of $100.00
and a maximum profit potential of $100.00 less the premium paid. There are differences in settlement style (NYSE ByRD Settlement
Value vs. closing price), maximum value, maximum profit and loss.
ByRDs exercise and assignment is based on an all day expiration Friday NYSE ByRD Settlement Value. So, it is possible for the standard
listed options to be in-the-money at expiration and the ByRDs to be out-of-the-money or for the ByRDs to be in-the-money and the
standard listed options to be out-of-the-money. Other significant differences may exist. The investor must understand the differences in
risk / reward profiles and settlement between standard listed options and ByRDs and before entering into any ByRDs transaction.
Disclaimer
Copyright ©2014 NYSE Euronext. All rights reserved. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior
written consent of NYSE Euronext. Binary Return DerivativesSM, ByRD SM, ByRDsSM, Finish High®, Finish High ByRDsSM, Finish Low®, Finish Low ByRDsSM, HiByRD SM, LoByRD SM and
NYSE ByRD Settlement IndexSM are service marks of NYSE Euronext or its affiliates.
The information above has been prepared for illustrative, informational and/or educational purposes only, without regard to any particular investor’s objectives, financial situation
or circumstances. Neither NYSE Euronext, nor any of its respective affiliates, officers, directors, employees, or agents are soliciting any action based on the foregoing, which is not
to be construed as a recommendation, offer, or solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy.
Prior to the execution of a purchase or sale of any security or investment, you are advised to consult with your own advisors, as the above is not intended to be, nor shall it be
construed to be, legal, tax, accounting or investment advice.
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