Option Transactions - Equity Derivatives Provision

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2002 ISDA Equity Derivatives Definitions
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Resources About the Equity Derivatives Definitions | (full wikitext) | (nutshell wikitext)
Hot topics Synthetic Prime Brokerage Anatomy | The Triple Cocktail | Cancellation and Payment | Calculation Agent
TOC | 1 General Definitions | 2 Option Transactions | 3 Exercise of Options | 4 Forward Transactions | 5 Equity Swap Transactions | 6 Valuation | 7 Settlement | 8 Cash Settlement | 9 Physical Settlement | 10 Dividends | 11 Adjustments and Modifications | 12 Extraordinary Events · 12.8 Cancellation Amount · 12.9 Additional Disruption Events · 12.9 List of ADEs · 12.9(b) Consequences of ADEs | 13 Miscellaneous

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Section 2 in a Nutshell
Use at your own risk, campers!

Article 2 General Terms Relating to Option Transactions
2.1. Certain Definitions and Provisions Relating to Option Transactions. The following terms apply to Option Transactions:

2.1(a)Commencement Date” means, for an American Option Transaction, the date so specified in the Confirmation (or the next following Scheduled Trading Day, if it is not a Scheduled Trading Day) or if no such date is specified, the Trade Date.
2.1(b)Number of Options” must be specified in the Confirmation.
2.1(c)Option Entitlement” means the number of Shares, or Baskets, per Option specified in the Confirmation or, if none is specified, one Share or Basket per Option.
2.1(d)Option” means each unit into which an Option Transaction is divided for purposes of exercise, valuation or settlement.
2.1(e)Strike Price” means:
(i) for an Index Option Transaction, the level of the Index specified in the Confirmation;
(ii) for a Share Option Transaction, the price per Share specified in the Confirmation;
(iii) for an Index Basket Option Transaction, the amount per Basket specified in the Confirmation; and
(iv) for a Share Basket Option Transaction, the amount per Basket specified in the Confirmation.

2.2. Option Style.

2.2(a)American Option” means an Option Transaction which is not a Bermuda Option and which may be exercised on any Scheduled Trading Day during a multi-day Exercise Period.
2.2(b)Bermuda Option” means an Option Transaction which may be exercised only on the Potential Exercise Dates during the Exercise Period and on the Expiration Date.
2.2(c)European Option” means an Option Transaction which may be exercised only on the Expiration Date.

2.3. Option Type.

2.3(a)Call” means an Option Transaction entitling Buyer:
(i) Where “Cash Settlement” applies: To receive from Seller the Option Cash Settlement Amount (where the Settlement Price exceeds the Strike Price); and
(ii) Where “Physical Settlement” applies: To buy Shares (or Baskets) from Seller at the Settlement Price per Share or Basket.
2.3(b)Put” means an Option Transaction entitling Buyer:
(i) Where “Cash Settlement” applies: To receive from Seller the Option Cash Settlement Amount (where the Strike Price exceeds the Settlement Price); and
(ii) Where “Physical Settlement” applies: To sell Shares (or Baskets) to Seller at the Settlement Price per Share or Basket.

2.4. Terms Relating to Premium.

2.4(a) Payment of Premium: Buyer must pay Seller the Option Transaction Premium on the Premium Payment Date.
2.4(b)Premium” for an Option Transaction will be specified in the Confirmation. Where the Confirmation specifies a Premium per Option, the Premium will be the product of the per-Option Premium and the Number of Options.
2.4(c)Premium Payment Date” will be the date specified as such in the Option Transaction Confirmation or, if it is not a Currency Business Day for the currency of the Premium, the next following Currency Business Day. If it is not specified, the Premium Payment Date will fall one Settlement Cycle following the Trade Date, or if that is not a Currency Business Day, the next following Currency Business Day.

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Full text of Section 2

Article 2 General Terms Relating to Option Transactions
Section 2.1. Certain Definitions and Provisions Relating to Option Transactions. When used in relation to an Option Transaction, the following terms have the indicated meanings:

2.1(a) Commencement Date. “Commencement Date” means, in respect of an American Option Transaction, the date specified as such in the related Confirmation or, if such date is not a Scheduled Trading Day, the next following Scheduled Trading Day. If no such date is specified, the Commencement Date shall be the Trade Date.
2.1(b) Number of Options. “Number of Options” means the number specified as such in the related Confirmation, being the number of Options comprised in the relevant Option Transaction.
2.1(c) Option Entitlement. “Option Entitlement” means, in respect of a Share Option Transaction, the number of Shares per Option specified as such in the related Confirmation and, in respect of a Share Basket Option Transaction, the number of Baskets per Option specified as such in the related Confirmation. In the event that no Option Entitlement is specified in the related Confirmation, the Option Entitlement in respect of any Share Option Transaction shall be one Share per Option, and in respect of any Share Basket Option Transaction shall be one Basket per Option.
2.1(d) Option. “Option” means, in respect of an Option Transaction, each unit into which the Option Transaction is divided for purposes of exercise, valuation or settlement.
2.1(e) Strike Price. “Strike Price” means:
(i) in respect of an Index Option Transaction, the level of the relevant Index specified or otherwise determined as provided in the related Confirmation;
(ii) in respect of a Share Option Transaction, the price per Share specified or otherwise determined as provided in the related Confirmation;
(iii) in respect of an Index Basket Option Transaction, the amount per Basket specified or otherwise determined as provided in the related Confirmation; and
(iv) in respect of a Share Basket Option Transaction, the amount per Basket specified or otherwise determined as provided in the related Confirmation.

Section 2.2. Option Style.

2.2(a) American Option. “American Option” means an Option Transaction, other than a Bermuda Option, pursuant to which the right or rights granted are exercisable on any Scheduled Trading Day during an Exercise Period that consists of more than one Scheduled Trading Day.
2.2(b) Bermuda Option. “Bermuda Option” means an Option Transaction pursuant to which the right or rights granted are exercisable only on the Potential Exercise Dates during the Exercise Period and on the Expiration Date.
2.2(c) European Option. “European Option” means an Option Transaction pursuant to which the right or rights granted are exercisable only on the Expiration Date.

Section 2.3. Option Type.

2.3(a) Call. “Call” means an Option Transaction entitling Buyer upon exercise:
(i) where “Cash Settlement” is applicable, to receive from Seller an Option Cash Settlement Amount if the Settlement Price exceeds the Strike Price; and
(ii) where “Physical Settlement” is applicable, to purchase Shares or Baskets of Shares from Seller at the Settlement Price per Share or Basket,
in each case as more particularly provided in or pursuant to these Definitions and the related Confirmation.
(b) Put. “Put” means an Option Transaction entitling Buyer upon exercise:
(i) where “Cash Settlement” is applicable, to receive from Seller an Option Cash Settlement Amount if the Strike Price exceeds the Settlement Price; and
(ii) where “Physical Settlement” is applicable, to sell Shares or Baskets of Shares to Seller at the Settlement Price per Share or Basket,
in each case as more particularly provided in or pursuant to these Definitions and the related Confirmation.

Section 2.4. Terms Relating to Premium.

2.4(a) Payment of Premium. In respect of an Option Transaction, Buyer shall pay Seller the Premium on the Premium Payment Date.
2.4(b) Premium. “Premium” means, in respect of an Option Transaction, the amount specified or otherwise determined as provided in the related Confirmation. If a Premium per Option is specified in the related Confirmation, the Premium shall be the product of the Premium per Option and the Number of Options.
2.4(c) Premium Payment Date. “Premium Payment Date” means, in respect of an Option Transaction, the date specified or otherwise determined as provided in the related Confirmation or, if such date is not a Currency Business Day for the currency in which the Premium is payable, the next following Currency Business Day. If the Premium Payment Date is not specified in the related Confirmation, the Premium Payment Date will fall on the date that is one Settlement Cycle following the Trade Date, or if such date is not a Currency Business Day, the next following Currency Business Day.

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Content and comparisons

Article 2 General Terms Relating to Option Transactions

Section 2.1 Certain Definitions and Provisions Relating to Option Transactions

2.1(a) Commencement Date
2.1(b) Number of Options
2.1(c) Option Entitlement
2.1(d) Option
2.1(e) Strike Price

Section 2.2. Option Style

2.2(a) American Option
2.2(b) Bermuda Option
2.2(c) European Option

Section 2.3. Option Type

2.3(a) Call
2.3(b) Put

Section 2.4. Terms Relating to Premium

2.4(a) Payment of Premium
2.4(b) Premium
2.4(c) Premium Payment Date

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See also

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References