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For the full set of rules, click here.

A number of parameters are required in order to calculate theoretical option values according to the Black & Scholes model. TASE uses these parameters to calculate margin requirements for options trading. This method of risk analysis is based on the SPAN method developed by Chicago Mercantile Exchange for setting margin requirements for derivative portfolios.

TASE calculates and publishes the following parameters:

Parameter	Explanation	Frequency
Annual Standard Deviation	Calculated according to the average implied volatility for "at-the-money" options for the two closest forthcoming expiration months. If option trading volume is low, the calculation of this parameter will be based on historical annual 120 day volatility of the underlying stock.	Published daily
Standard Deviation Fluctuations	For Teva, Bank Hapoalim, Bank Leumi and Israel Chemicals shares – one fifth of the annualized standard deviation, but no less than 5%.	Published daily
Annual NIS Interest Rate	Calculated as the average annualized  yield of T-Bills maturing within 60-120 days for the three days preceding the date of update	Published weekly (on last trading day of the week)

Standard deviation data can be accessed from the TASE website via "Market Data > Derivatives Market" under the "Standard Deviation" tab

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For ICL option specifications, click here.

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All price quotes are conducted in New Israeli Shekel (NIS). Members will submit orders in set increments as follows:

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As is the case with index derivatives, the settlement price is set on the Thursday preceding the last Friday of the expiration month.

In the event that this day is not a TASE trading day, the settlement price will be set on the first trading day prior to that Thursday.

Examples:

·         The last Friday in December 2009 falls on the 25^th (the 31^st being a Thursday) and therefore, the settlement price is set on the 24^th, the Thursday preceding the last Friday.

The last Friday of October 2009 falls on the 30^th, and the settlement price is set on Thursday, October 29^th

The opening price [in NIS] of the underlying share on the Thursday morning prior to the expiration date is the equity option settlement price. 

This opening price is set randomly between 9:45-9:50.

For a more detailed description of the calculation of opening prices during the opening phase, click here.

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The contract unit (number of underlying shares) varies with the underlying share. In the case of Teva Pharmaceutical Industries, each option entitles its owner the right to either buy or sell 100 shares.  For Israel Chemicals, Bank Leumi and Bank Hapoalim, each option represents 1,000 shares.

The rationale for enabling various option contract unit lies in the large disparity in various stock prices. Setting a uniform contract size for all shares could create a situation in which the value of the contract is either too large or too small.

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TASE will introduce strike prices for a new option series in the following manner:

·         A call and a put with a strike  price equal to the closing share price;

·         A varying number of strike  prices for additional calls and puts will be set at intervals of 20% in either direction from the closing share price;

·         A call with an strike price of 1 NIS (C(001)).

The intervals between strike prices are a function of the underlying share price:

In addition, options with four "extreme" strike prices will be introduced:

·         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.

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 – 170,180,190

·         strike prices below the closing stock price – 150,145,140,135,130

·         C(001)

·         Extreme strike  prices above closing stock price (+50%,+70%) - 240,270

·         Extreme strike  prices below closing stock price (-50%,-70%) – 80, 48

For full details regarding the conditions and calculation of strike prices, see the Derivatives Profile in the TASE rules and regulations.

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During the lifespan of an options series, TASE will introduce additional strike prices under the following conditions:

·         The TASE will introduce new strike prices in order to keep them 20% ± from the Spot – 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%, additional options with different strike prices will be introduced on the following trading day.

·         In addition, six weeks before expiration of series, TASE will introduce 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.

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(001)

·         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 NIS 179. Since the difference between the new closing price, 179, and the highest 'non-extreme' strike price, 190 is less than 20%, additional options with strike prices of 200 and 210 will be introduced.

For full details regarding the conditions and introducing of strike prices, see the Derivatives Profile in the TASE rules and regulations.

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Exchange-traded 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 "out-of-the-money", TASE will introduce deep in-the-money and out-of-the-money options from the outset.

Example:

The closing price of the underlying share on the previous trading day is 400. Therefore, the "extreme" strike prices will be:

·         Extreme upside strike prices — 600,680

·         Extreme downside strike prices — 200,120

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Options are subject to cash settlement, which takes place on the first business day after the last Friday of the expiration month (usually a Sunday).

The 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; non-cash distributions; stock dividends; rights offerings; stock split and reverse stock split.

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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)
  • Strike prices and the contract unit will be adjusted according to 

    Ratio Method:

    Option name and symbol
    • Each option in the series will be marked by an asterisk (*) to signify that an adjustment has been made;
    • The strike price (which is part of the option's name and symbol) will be changed accordingly.
  • The security number assigned to the option will not be changed.

•  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 [pre-adjustment] 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.
  • If the ex date falls within the week the option series expires, a new series will not be introduced.

• Open positions limit

Should TASE deem it necessary, it will adjust the open positions limit.

In the case of cash dividend distributions not exceeding 1% of the value of the underlying share, no adjustment will be made.

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Example:

Company XYZ announced the distribution of cash dividend equaling 900 Agorot per share.
Assuming that the known closing price at the date the company first announced the dividend is 38,000 Agorot,

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 Ex Date price (which is the opening price the next trading day after Record Date) as the record date price subtracted the dividend rate per share. 

As a result, the Ex-Dividend price will be 39,200 Agorot (40,100-900).

The strike price will be adjusted as follows:
The NIS 400 strike price on Call(400) which expires at September 08'  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

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The following illustrates the adjustment made for stock splits (also known as share dividends or bonus shares).

XYZ Company announces a two- for- one stock split. Shareholders will receive an additional [bonus] share for each share he/she holds. Assuming that the closing price for XYZ shares on the trading day preceding the ex-split date is NIS 363, TASE will calculate the share price on the ex date as follows:

Where:

The base price ex-split, 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

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To view TASE announcements regarding adjustments made to equity option specifications, click here.