TASE Site - Non-Linked Israel Government Bond Options

Non-linked Israel Government Bond Options – General

On which bonds are options being launched?

Options will be launched on government bonds meeting the following criteria: fixed rate non-linked shekel denominated government bonds with maturities exceeding four years and which have a market cap exceeding NIS 7 billion.
At this time, non-linked Israel government bond options will be launched on the following series:

IL GOV5.0 01/20 (ISIN: IL0011157737)
IL GOV5.5 02/17 (ISIN: IL0011015752)

Once the time to maturity of a bond series reaches three years, the launch of new options on that series will be discontinued and a new bond series will be selected as the underlying asset of the following series of options.

Terms of Options on Non-linked Israel Government Bonds

Launch date	November 2011

Trading hours	for details, click here

Contract Size	NIS 100,000 bond par (face) value

Exercise dates	monthly


Option Lifetime	one, two or three months

Price Quotation	in NIS

Price Quote Increments	up to NIS 20 - increments of NIS 1 NIS 20-200 - increments of NIS 5 NIS 200-2,000 – increments of NIS 10 Over 2,000 – increments of NIS 20

Exercise Prices	in increments of 0.5 agorot within a range of ± 3% of an at-the-money option. Eight weeks prior to expiration, exercise prices will be opened with increments of 0.25 agorot within a range of ±2% of an at-the-money option.
	Sthe
Final Trading Day	the Wednesday preceding the second Friday of the exercise month



Settlement Price	the opening price of the ILGOV5.0 01/20 on the final trading day preceding the settlement date

Settlement Date	the second Friday of the exercise month


Type of Option	European
Settlement	cash

Open Positions Limit	5,000 contracts separately for each underlying asset


Maximum Daily Price Fluctuation	none

Trading Halts	When trading in ILGOV5.0 01/20 is halted, options' trading is halted as well.

* For convenience, these terms pertain to Non-linked Israel Government Bond Series 0120, but are applicable for each of the bond series on which options will be launched.

Historical settlement prices of the options and forthcoming exercise dates

For information on historical settlement prices and forthcoming exercise dates, click here.

What are the parameters set by TASE for calculate margin requirements?

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 asset.

Published daily

Standard Deviation Fluctuations

One fifth of the annual standard deviation, but no less than 1%.

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 will be available on the TASE website under the "Derivatives Market" menu following the launch of the options.

How will TASE calculate margin requirements for bond options?

For the purpose of setting margin requirements TASE evaluates bond options according to the Black & Scholes model.
The spot price for options pricing is calculated as the dirty price of the underlying bond.
Should an ex-interest payment day occur during the lifetime of the option, the spot price used in the pricing of the option will be calculated as the dirty price of the underlying bond minus the present value of the interest payment, as reflected in the following equation:

Equation for calculating the spot price used in the pricing of the option

where:
V -    the bond price used to calculate the theoretical value in agorot (NIS 0.01)
P - the dirty price of the bond in agorot;
C -   the annual bond's coupon rate, expressed in agorot
r    -   risk-free interest rate, calculated as the average of anual yields for "MAKAM" T-bill series with a redemption range between 60 and 120 days
t    -    the number of calendar days between the calculation date and the payment date divided by 365

Rules and regulations regarding TASE-traded equity options

For the full set of rules, click here.

Back to the Equity Options FAQ

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Non-linked Israel Government Bond Options – Trading

What are the rules for derivatives trading on the TASE?

For an overview of the TACT (Tel Aviv Continuous Trading) Derivatives, click here.

How are option prices quoted and what minimum price fluctuation applies?

Option prices are in NIS.

Orders are submitted in fixed increments as specified below:

Option Price in NIS	Price increments in NIS
Up to 20	1
20-200	5
200-2000	10
Over 2000	20

How does a trading halt in the underlying bond affect option trading?

A trading halt in the underlying bond triggers a trading halt in the option as well.

What kind of orders pertain to options trading?

For types of orders on TACT-Derivatives, click here.

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Non-linked Israel Government Bond Options – Specifications

What is the lifetime of an equity option series?

Three option series will trade simultaneously – for the three approximate months.

A new series of 3-month options will open each month. Accordingly, at any given point of time, there will be three series of options: a one-month, two-month and three-month series.

Trading in a new series of options will open on the date the settlement price is set.

On which day of the month is the settlement price set?

The settlement price is set on the Thursday preceding the second Friday of the exercise month. Should this day fall on a TASE trading holiday, the settlement price date will be moved up to the first trading day preceding the original date set.

Example:

The second Friday of December 2011 falls on 9/12 (and the Thursday preceding it is 8/12). Accordingly the settlement price is set on Thursday, 8/12/2001.

How is the settlement price set?

The settlement price is set as the opening price of the underlying non-linked government bond in agorot (NIS 0.01). The opening price is set at an arbitrary point of time between 9:30-9:35 in the morning.
For the manner of calculating opening prices in the "open auction" phase, click here.

For a calendar of trading days, click here.

What is the last trading day for an bond option series?

The last trading day in a series of bond options is the Wednesday preceding the second Friday of the exercise month.
Should this day fall on a TASE trading holiday, the last trading day of options trading will be moved up to the first trading day preceding the original date set.

Example:

The second Friday of December 2011 falls on 9/12 (and the Thursday preceding it is 8/12). Accordingly, the final day for options trading in December, 2011 is 7/12/2011.

What is the option contract size?

Each option represents NIS 100,000 par (face) value of the underlying non-linked Israel government bonds.

What are the rules for setting exercise prices for a new series of options?

TASE will open new option contracts with the following exercise prices:

one call and one put option with an exercise price equaling the closing dirty bond price;
a variable number of exercise prices will be opened within a 3% range up and down of the closing dirty bond price.

The exercise prices will be set in increments of 0.5 agorot (NIS 0.01)

For the purpose of calculating option exercise prices, the closing price of the underlying option is rounded to the nearest 0.5 agorot.

For example:
The closing price of the underlying bond was set at 102.21 agorot on the previous trading day.
The option contracts that will open on the following day will have the following exercise prices:

102 – "at-the-money" exercise price;
102.5, 103, 103.5, 104, 104.5, 105 – exercise prices higher than the reference underlying bond price;
99.5, 100, 100.5, 101.5 – exercise prices lower than the reference underlying bond price.

Notwithstanding the above, should an ex-interest date be scheduled during the time between the date a new series of options is opened and its exercise date, TASE will open contracts with the following exercise prices:

one call and one put option with an exercise price equaling the closing dirty bond price minus the Present Value of the impending interest payment (coupon);
a variable number of exercise prices will be opened within a 3% range up and down of the closing dirty bond price minus the Present Value of the impending interest payment (coupon).

The exercise prices will be set in increments of 0.5 agorot.

For the purpose of calculating option exercise prices, the closing price of the underlying option is rounded to the nearest 0.5 agorot.

For example:
The closing price of the underlying bond was set at 102.21 agorot on the final trading day and the Present Value of the impending coupon comes to 5.5 agorot.

The option contracts that will open on the following day on a new will have the following exercise prices:

96.5 – "at-the-money" exercise price;
97,97.5,98,98.5,99,99.5 – exercise prices higher than the closing underlying bond price;
94, 94.5, 95, 95.5, 96 – exercise prices lower than the closing underlying bond price.

To access the full set of rules regarding the opening of contracts, see the Derivatives Profile in TASE rules and regulations.

Rules for opening contracts with new exercise prices for existing option series?

Throughout the lifetime of an existing options series, TASE will open contracts with additional exercise prices as follows:

When the absolute value of the difference between the closing underlying bond price and the highest or lowest is exercise price is less than 3% - additional exercise prices will be opened on the following trading day.
Eight weeks prior to the exercise date, additional contracts will be opened with exercise prices in increments half of original increments (i.e. 0.25 vs. 0.5 ) within a range of 2% higher or lower than the closing dirty underlying bond price.

For example:
The closing price of the underlying bond was set at 102.21 agorot (NIS 0.01) on the previous trading day.
The option contracts that will open on the following day will have the following exercise prices:

102 – "at-the-money" exercise price;
102.25, 102.5, 102.75, 103, 103.25, 103.5, 103.75. 104, 104.25, 104.5, 105 – exercise prices higher than the closing underlying bond price;
99.5,100, 100.25, 100.5, 100.75, 101, 101.25, 101.5, 101.75 – exercise prices lower than the closing underlying bond price.

Should bond prices rise 3.5% to 105.78 agorot, since the highest exercise price (105) is less than 3%, a new contract with an exercise price of 105.5 will be opened the following day.
The full set of rules for adding exercise prices can be found in the
Derivatives Profile in TASE rules and regulations.

What is the open positions limit?

The open positions limit was set to 5,000 contracts for each separate underlying asset.

How are options settled and what is the settlement schedule?

Options are cash-settled on the second Friday of the exercise month (in the event that this day is not a "business day", settlement will be postponed to the following business day).

Are TASE stock options American or European options?

European.

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