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10.5.2 Option Exchanges

A detailed guide on option exchanges in Canada, including explanations of key terms, examples, and the structure of equity option quotes.

OPTION EXCHANGES

In Canada, the Montréal Exchange (MX) lists options on individual stocks, stock indexes, financial futures, exchange-traded funds (ETFs), and the U.S. dollar.

Just like stocks, exchange-traded option prices and trading information are reported on the exchanges’ websites, by financial data providers, and in the business press the next day. Table below provides an illustration of typical equity option quotation.

Table: Equity Option Quotation

XYZ Inc.
Bid Ask Last Opt Vol Opt Int
Mar.
$17.50 $3.80 $4.05 $3.95 50 1595
$17.50P $2.35 $2.60 $2.4019 5 3301
Sept.
$17.5045 $1.10 $1.35 $1.25 41 3403
$17.50P $0.95 $1.05 $1.00 30 1058
Dec.
$20.00P $1.85 $2.00 $1.90 193 1047
Total 319 10,404

Explanation of Terms

  • XYZ Inc.: This is the underlying for the option.
  • 17.75: This number represents the last sale price of the underlying.
  • Mar.: This is the options’ expiration month (March, September, December).
  • $17.50: This number represents the strike or exercise price of each series.
  • $17.50P: The ‘P’ indicates that the option is a put.
  • 3.80: This number represents the latest bid price for each XYZ option, expressed as a per-share price.
  • 4.05: This number represents the latest asked price for each XYZ option, expressed as a per-share price.
  • 3.95: This number represents the last sale price (last premium traded) of an option contract, expressed as a per-share price.
    • For example, the 3.95 figure for the XYZ March 17.50 calls is the last sale price for this series.
  • Opt Vol: This is the number of options traded.
    • For example, 50 XYZ March 17.50 calls were traded in the trading session shown, representing 5,000 underlying shares of XYZ ( $50 \times 100$ pets).
  • Opt Int: This is the open interest—that is, the total number of option contracts in the series that are currently outstanding and have not been closed out or exercised.
    • For example, the figure 1595 refers to the open interest for the XYZ March 17.50 calls. The figure 10,404 refers to the open interest ot all series of XYZ options, including the series that trade well as well as the series that did not trade.

FAQs

**Q1: What is the Montréal Exchange?

**A1: The Montréal Exchange (MX) is Canada’s only financial exchange dedicated to the trading of derivative instruments, such as optionsnaand futures on equities, indices and currencies.

**Q2: How are option prices determined?

**A2: Option prices are determined by multiple factors:block

  • The current price of the underlying asset.
  • The strike price of the option.
  • The time to expiration of the option.
  • The volatility of the price of the underlying asset.
  • The risk-free interest rate.

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## Where are options on individual stocks, stock indexes, financial futures, ETFs, and the U.S. dollar listed in Canada? - [ ] Toronto Stock Exchange - [ ] Vancouver Stock Exchange - [x] Montréal Exchange - [ ] Canadian Securities Exchange > **Explanation:** The Montréal Exchange lists options on individual stocks, stock indexes, financial futures, ETFs, and the U.S. dollar in Canada. ## What does the figure "17.75" represent in an equity option quotation? - [x] Last sale price of the underlying - [ ] Strike price - [ ] Bid price - [ ] Ask price > **Explanation:** In the equity option quotation, "17.75" represents the last sale price of the underlying security. ## In the context of an options table, what does "Mar." signify? - [ ] Currency of the option - [x] Expiration month (March) - [ ] Trading volume - [ ] Open interest > **Explanation:** "Mar." refers to the options’ expiration month, which is March. ## In equity option quotations, what does 'P' indicate? - [ ] The option is a call - [ ] The option is a future - [ ] The option is an ETF - [x] The option is a put > **Explanation:** The 'P' in the option symbol indicates that the option is a put. ## What does the figure "3.95" represent in an equity option quotation? - [ ] Bid price - [ ] Ask price - [x] Last sale price (last premium traded) - [ ] Strike price > **Explanation:** The figure "3.95" represents the last sale price (last premium traded) of an option contract. ## How is "Opt Vol" defined in the context of options trading? - [ ] Open Interest - [x] Number of options traded - [ ] Bid price - [ ] Ask price > **Explanation:** "Opt Vol" refers to the number of options traded during a specific trading session. ## How is "Opt Int" defined in the context of options trading? - [x] Open interest – total number of option contracts outstanding - [ ] Number of options traded - [ ] Bid price - [ ] Ask price > **Explanation:** "Opt Int" represents the open interest or the total number of option contracts in the series that are currently outstanding and not closed out or exercised. ## Calculate the total Opt Vol in the given options table. - [ ] 3,195 - [ ] 104,047 - [ ] 10,404 - [x] 319 > **Explanation:** The total Opt Vol is the sum of the options traded (50 + 5 + 41 + 30 + 193 = 319). ## Which of the following represents the open interest of all series of XYZ options? - [x] 10,404 - [ ] 3,403 - [ ] 319 - [ ] 1,595 > **Explanation:** The figure 10,404 refers to the open interest of all series of XYZ options, including those that did and did not trade. ## What does the bid price represent in an option quotation? - [ ] Last sale price - [x] Latest price a buyer is willing to pay for the option - [ ] Latest price a seller is asking for the option - [ ] Open interest > **Explanation:** The bid price represents the latest price a buyer is willing to pay for the option.

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Tuesday, July 23, 2024