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:
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.
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.
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 – For a Finish High ByRD to be in-the-money, the expiration Friday NYSE ByRD Settlement Value must be above the strike price.
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.
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.
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.
At expiration, the holder of an in-the-money ByRD will automatically receive $100.00 per contract.
At expiration, the writer of an in-the-money ByRD will automatically be debited $100.00 per contract.
At expiration, the holder of an out-of-the-money ByRD will receive $0.00 per contract.
At expiration, the writer of an out-or-the-money ByRD will be debited $0.00 per contract.
NYSE ByRD Settlement Value
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.
The table below is an example of a seven trade NYSE ByRD Settlement Value
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
FINISH HIGH vs. FINISH LOW
|STANDARD LISTED EQUITY OPTIONS
CALLS vs. 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||The strike price less
the premium paid
|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||The strike price less
the premium received
|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
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.