
TASE Equity Options – FAQ



    What is the trading method for derivatives at TASE? 
 

      What is the trading schedule for the derivatives market? 
 

      How are option prices quoted and what is the minimum tick size? 
  Option prices are quoted in NIS.
Orders are submitted in fixed increments as specified below:
Option Price in NIS 
Price increments in NIS 
Up to 20 
1 
20100 
2 
100200 
5 
Over 200 
10 
 


      How do trade halts in the underlying share affect options trading? 
  A trading halt in the underlying share triggers a trading halt in the options.  


      How does the Price Monitoring Mechanism affect options trading? 
  If a Price Monitoring Mechanism is applied to an underlying share of an equity option, the trading in the option will be halted, unless it occurs in the opening auction of the share.
 


      What type of orders can be submitted for options trading? 
  In addition to the LMT order, there are two types of orders that can be submitted for immediate execution, which are suitable for derivatives trading:
 The Fill Or Kill (FOK) order
 Immediate or Cancel (IOC) order
 


 
    What is the life span of an equity option series? 
  Three monthly option series trade simultaneously.
A new option series is opened each month for a period of three months.
Hence, at any given point of time, three series are traded for the three upcoming months.
A new series is opened on the day on which the settlement price is set.
 


      What is the last trading day for an equity option series? 
  The last trading day for an equity option series is the Wednesday preceding the last Friday of the month.
In the event that this day is not a TASE trading day, the last trading day will be the first trading day preceding that Wednesday.
Examples:
 The last Friday in May was May 25th. Accordingly, the settlement price was set on Thursday, May 24th, and the last trading day was Wednesday, May 23rd.
 The last Friday of April was April 27th. Since neither April 25th nor April 26th were trading days that year, the settlement price was set on Tuesday, April 24th and the last trading day was Monday, April 23rd.
 


      On which day of the month is the final settlement price set? 
  Final settlement prices for equity options are set on the Thursday preceding the last Friday of the month.
In the event that this day is not a TASE trading day, the final settlement price will be set on the first trading day preceding that Thursday
Examples:
 The last Friday in May was May 25th. Accordingly, the final settlement price was set on Thursday, May 24th (and the last trading day was Wednesday May 23rd).
 The last Friday of April was April 27th. Since neither April 25th nor April 26th were trading days that year, the final settlement price was set on Tuesday, April 24th (and the last trading day was April 23rd).
 


      How is the final settlement price set? 
 

      What is the Underlying Asset Multiplier? 
  The contract unit (multiplier) is used for determining the notional value of each contract. It is determined for each underlying asset and is consistent for futures and options. Same applies for monthlies and weeklies.
 


      What are the rules defining the setting of strike intervals for a new option series? 
  TASE sets strike prices for monthly options as follows:
 A Call and a Put equal to the index closing price;
 A variable number of strike prices are opened at intervals of 20% or 30% in either side of the underlying's closing price.
 A call option with strike price equal to NIS 1. For available options with a 1 NIS strike price >
The interval between strike prices is a function of the index level:
Strike price 
Interval in NIS between strike prices 
Less than 100 
2 
100200 
5 
200500 
10 
5001,000 
20 
1,0002,000 
50 
2,0005,000 
100 
5,00010,000 
200 
10,00020,000 
500 
20,00050,000 
1,000 
50,000100,000 
2,000 
Over 100,000 
5,000 
 Two strike prices – ±50% of the closing share price;
 Two strike prices – ±70% of the closing share price.
These strike prices will be rounded to the nearest interval according to the above table. Example: The closing price of the underlying share in the previous trading day came to NIS 162.5 agorot. The strike prices that will be introduced on the new option series the following day will be as follows:
 "At the money" strike price – 160
 Strike prices above the closing stock price – 170,180,190trike prices above the closing stock price – 170,180,190
 Strike prices below the closing stock price – 150,145,140,135,130 C(100)
 Extreme strike prices above closing stock price (+50%,+70%)  240,270
Extreme strike prices below closing stock price (50%,70%) – 80, 48
 


      What are the rules defining the opening of additional strike prices for existing option series? 
  During the lifetime of an existing option series TASE will open strike prices as follows:
 The TASE introduces new strike prices in order to keep them ± 20% or ± 30% from the spot (depending on the option) – when the absolute value of the difference between the current closing price of the underlying share and the highest or lowest strike price (excluding "extreme" strike prices) is less than 20% or ± 30% (depending on the option), additional options with different strike prices are introduced on the following trading day.
 In addition, six weeks before expiration of series, TASE introduces options with strike prices at one half of the interval of those originally introduced. This accounts only for strike prices 10%± from the Spot.
 In cases in which the underlying share is subject to sharp price fluctuations, additional options with "extreme" strike prices will be introduced (±50%, ±70%).
Example:
The closing price of the underlying share in the previous trading day came to NIS 162.5 agorot.
The strike prices on the new option series that will be introduced the following day will be:
 "At the money" strike price – 160
 Strike prices above the closing stock price – 170,180,190
 Strike prices below the closing stock price – 150,145,140,135,130
 C(100)
 Extreme strike prices above closing stock price (+50%,+70%) – 240,270
 Extreme strike prices below closing stock price (50%,70%) – 80, 48
On the following day, the stock price increased 10% to 179 agorot. Since the difference between the new closing price, 179, and the highest 'nonextreme' strike price, 190 is less than 20%, additional options with strike prices of 200 and 210 will be introduced.
 


      What are "extreme" strike prices? 
  Exchangetraded shares can experience sharp price fluctuations. In order to prevent situations in which, due to price fluctuations, it would be impossible to trade options that are either "in" or "outofthemoney", TASE opens deep inthemoney and outofthemoney strikes.
Example:
The closing price of the underlying share on the previous trading day is 400 Agorot. Therefore, the "extreme" strike prices will be:
 Extreme upside strike prices — 600,680
 Extreme downside strike prices — 200,120
 


      What are the open position limits? 
 
The limit applies to both derivative classes (options and futures) and to all expiration dates without differentiation.
 


      What is the method of settling options and when is the settlement date? 
  TASE equity options are cashsettled. The options are settled on the last Friday of the month. In the event that the settlement day is not a business day, settlement is postponed to the following business day.  


      Are TASE index options European or American options? 
  TASE index options are European.  


 
    What is a corporate action? 
  Corporate action announcements are issued by public companies when they intend to perform a change that affects their share or debt holders.  


      Which corporate actions trigger adjustments to equity options specifications? 
  Companies whose shares serve as the underlying assets of equity options may choose to undertake corporate actions from time to time. As a result of these corporate actions, changes in stock prices may ensue.
When corporate actions that affect the underlying stock price are undertaken, TASE responds by adjusting the specifications of the option to ensure, in as much as possible, that the economic value of the option is unaltered.
It must be emphasized that the company and not TASE initiates the corporate action and that TASE merely makes adjustments to the existing series of traded options.
The most common type of corporate events that trigger technical adjustments include: cash dividends; noncash distributions; stock dividends; rights offerings; stock split and reverse stock split.  


      How does TASE adjust option specifications for corporate actions? 
  When adjustments are made as a result of corporate actions, TASE undertakes the following actions at the beginning of the "ex" date:
Adjustments to existing options series (i.e., those trading prior to the "ex" adjustment)
Introducing new series of options
 In addition to adjusting the existing series of options, TASE will introduce a new series of options on the ex date bearing the same expirations dates as the original [preadjustment] series.
 The strike prices these options will be set against the underlying stock's ex price in accordance with the rules for introducing strike prices of a new series of options.
 The contract unit will be identical to the original one, prior to the adjustment.
 Open positions limit
 Should TASE deem it necessary, it will adjust the open positions limit.
In the case of cash dividend distributions not exceeding 0.4% of the value of the underlying share, no adjustment will be made.  


      What is the Ratio Method? 
  The Ratio Method refers to the manner in which strike prices and the contract unit are adjusted in most cases for corporate actions.
Adjustment of Strike Prices
Strike prices are adjusted and calculated as follows:
Strike prices will be rounded to the closest one hundredth of one NIS.
Adjustment of contract unit
The contract unit is adjusted and calculated as follows:
The contract unit will be rounded to two decimal points.
Legend to the equations
E _{EX} – Strike price after adjustment.
E_{CUM} – Strike price prior to the adjustment.
M_{EX} – contract unit after the adjustment.
P_{EX }– Base price of the underlying share on the ex date.
P_{CUM} Closing price of the underlying share on the trading day preceding the ex date (prior to the adjustment).
M_{CUM }– contract unit prior to the adjustment.
 


      Are there instances in which options will not be adjusted for cash dividends? 
  If the dividend yield which a company announces is less than 0.4% of the known closing price at the announcement date, TASE does not adjust the option's specifications, as the impact on the option premium is relatively negligible.  


      Adjustment for cash dividend distributions  illustration 
  Company XYZ announced the distribution of cash dividend equaling 900 Agorot per share. Assume the known closing price at the date the company first announced the dividend is 38,000 Agorot. The underlying asset's multiplier is 100.
Since the dividend amount exceeds 0.4% (900/38,000) of the known closing price at the date of the announcement, TASE will adjust the specifications of the equity option as follows:
Assuming the record date (also known as the Cum Date) price of company XYZ is 40,100 Agorot, TASE will calculate the ExDate price (which is the opening price the next trading day after Record Date) as the record date price minus the dividend rate per share.
As a result, the ExDividend price will be 39,200 Agorot (40,100900).
The strike price will be adjusted as follows:
The NIS 400 strike price on Call (400) will be changed to 391.02 as follows:
The strike prices on all option series for all expiration dates will be adjusted according to this ratio [392/401]. The contract unit will be adjusted upwards, as it will be multiplied by the inverse ratio. Hence, since the contract unit was 100, the new one will be 102.30 as follows:
Summary Table:
Option specification 
Before Adjustment 
After Adjustment 
Strike Price 
400 
391.02 
Contract Unit 
100 
102.3 
Symbol 
XY8U40000C 
XY*U39102C 
Name 
XYZ C40000 SEP8 
*XY C39102 SEP8 
 


      Adjustment for stock splits  illustration 
  The following illustrates the adjustment made for stock splits (also known as share dividends or bonus shares).XYZ Company announces a twoforone stock split. Shareholders will receive an additional [bonus] share for each share they hold. Assuming that the closing price for XYZ shares on the trading day preceding the exsplit date is NIS 363, TASE will calculate the share price on the ExDate as follows:
Where:
The base price exsplit, therefore, comes to NIS 181.50
· The strike price on a Call(360) option which expires at September 08' will be adjusted from NIS 360 to NIS 180 as follows:
Strike prices on the options in each series for all expiration dates will be adjusted according to this ratio.
· The contract unit will be adjusted upward from 100 to 200 as follows:
Summary Table:
Option specification 
Before Adjustment 
W 
Strike Price 
360 
180 
Contract Unit 
100 
200 
Symbol 
XY8U36000C 
XY*U18000C 
Name 
XYZ C36000 SEP8 
*XY C18000 SEP8 
 


      Where can I find announcements regarding adjustments to equity option specifications? 
 

      What is the adjustment committee? 
  When a company announces a corporate action the handling of which is deemed complex by TASE, TASE is able to convene a special subcommittee of the Derivative (MAOF) Clearing House Board of Directors.
This special subcommittee (the "adjustment committee") can decide whether or not / how adjustments will be made to the option's specifications as a result of the corporate action. The decision will take into account, among other factors, TASE's duty to maintain fair and orderly trade.  


  


