Binary Return Derivatives (ByRDs)SM
are “binary” options with a per-contract fixed return amount of $100.00. Binary Return Derivatives will be offered in two forms:
- Finish High ByRDSM
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
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.
Although Binary Return Derivatives 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.
Binary Return Derivatives 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 Binary Return Derivatives and before entering into any Binary Return Derivatives transaction.