What is EASY Options?

Brief description

EASY Options are option contracts where you as the investor decide whether you believe a particular share or index is going to reach a price above or below a predetermined level in two weeks’ time. You will always have at least five price levels to choose from. Additional price levels will become available as the price of the share or index moves, so that there will always be price levels available that are above and below the closing price from the previous day.

At the end of the period, you will receive NOK 1 per contract if your view of the market proved to be correct. The amount you originally invested will be deducted from your profit. If your view of the market was wrong, you will not receive any payment and you will forfeit the amount you originally invested in EASY Options. This means that with EASY Options you always know in advance how much you stand to receive if the price you have chosen is on the right side, or alternatively how much you would lose if the price is on the wrong side. It is of course possible to realise your profit or limit your loss by closing a position before the two-week period is over.

It will in due course be possible to trade EASY Options through most of the broking firms that offer trading in shares and derivatives on Oslo Børs. Click here for a list of broking firms. However, not all broker firms have systems in place for trading in EASY Options at the moment.

The broking firm you use will also set up a clearing account for you with Oslo Clearing.

EASY Options in practice

Let us say that you expect the Norsk Hydro share price to rise over the next two weeks. You purchase 10,000 EASY-over options at NOK 0.25 per contract, totalling NOK 2,500. This contract will produce a profit if the volume-weighted average price of the Norsk Hydro share is higher than a pre-determined price (for example NOK 40) in two weeks. If the price ends up over NOK 40 at that time, you will receive NOK 10,000 (NOK 1 per contract). Your profit will be NOK 7,500 (payment received less the original investment). If the price ends up below NOK 40, you will have lost your original investment of NOK 2,500.

If on the other hand you expect that the Norsk Hydro share price will fall over the next two weeks, you can buy an EASY-under option.

The price of EASY Options will always be between NOK 0 and NOK 1.

Trading fees apply when investing in EASY Options. Examples of fee calculations can be found here.

(These calculations do not include the trading commission that will be charged by the broker firm you use, and your broker will set the amount charged separately).

Investor protection

Oslo Børs monitors trading in the underlying instruments to which the EASY Options relate. This means, for example, that the exchange's market surveillance department may impose a temporary halt to trading in a particular share, or may suspend a share from trading, if it believes that the pricing of the share is uncertain or incorrect. Through these arrangements, investors in EASY Options will benefit from the same investor protection as if they were trading directly in the exchange's marketplaces for shares or derivatives. In practical terms, market surveillance means that Oslo Børs ensures that the prices to which your investments relate are based on fair and proper pricing and access to information.

A comparison of EASY Options and normal options

There are both similarities and differences between EASY Options and normal options. If you buy an EASY Option or an ordinary option, you can never lose more than the amount you invested if the underlying price moves against you. If you sell an EASY Option or an ordinary option, you can never earn more than the premium you have received if the price moves in the right direction.

However, there are also one or two important differences between EASY Options and normal options. If you buy an EASY Option and the price goes in your favour, you know exactly how much you will earn. On the other hand, an ordinary option has no upper limit to the amount you might earn since the more the price moves in your favour, the more you earn. This also applies to selling options, since if you sell EASY Options you always know precisely how much you might lose if the price goes against your view of the market. When selling normal options there is no limit to the size of the potential loss, and the more the price goes against you, the more you will lose.

Series description (ticker code)

NHY8L12BO40 is an example of a typical EASY-over series description.

What it means is: I think that the price of the Norsk Hydro share will be over NOK 40 by 12.12.2008.

NHY = the underlying instrument, i.e. the share or index to which the EASY Options relate
8 = the expiry year (2008), i.e. the year in which the contract comes to an end
L = the expiry month (December), i.e. the month in which the contract comes to an end
12 = the expiry day (12 December), i.e. the day on which the contract comes to an end
BO = Easy-over, you expect that the Norsk Hydro share price will be over, and not under, NOK 40 when the contract comes to an end
40 = the exercise price, which is the price above which you think the Norsk Hydro share price will close

The expiry months for EASY Options use the capital letters A to X where A-L are used for EASY-over, and M-X are used for EASY-under.

For more detailed product information and requirements, see ”A3 Contract specifications” in the Derivatives Rules.