An option is a contract that gives the buyer the right, but not the obligation, to sell or buy a particular asset at a particular price, on or before a specified date. The seller of the option, conversely, assumes an obligation in respect of the underlying asset upon which the option has been traded.
Options are available on a variety of underlying assets – physical assets, like oil and sugar, and financial assets, such as cash shares and FX forwards. The option may be based on a futures contract, where the underlying asset is a future; these are known as options on futures.
A call option is an option to buy an asset (the underlying) for a specified price (the strike or exercise price), on or before a specified date.
A put option is an option to sell an asset for a specified price on or before a specified date.
The buyer of an options contract is said to be long, or the holder or owner of the contract. The seller of an options contract is said to be short, or the writer of the contract.
| NSE Derivatives Market | |||||||||||||||
| Category of contract | Options on Single Stock Future | ||||||||||||||
| Underlying financial instrument | Single stock futures listed on the NSE – Safaricom Plc – SCOM | ||||||||||||||
| System code | 19 SEP 24 SCOM 20.00 CALL/PUT | ||||||||||||||
| Contract months | Monthly or quarterly (March, June, September and December). | ||||||||||||||
| Expiry dates | The third Thursday of every expiry month. (If the expiry date is a public holiday then the previous business day will be used.) | ||||||||||||||
| Expiry times | At 15H00 Kenyan time. | ||||||||||||||
| Listing program | Monthly or Quarterly | ||||||||||||||
| Valuation method on expiry | This will be based on the volume weighted average price of the underlying for liquid contracts, and the theoretical price (spot + cost of carry) for illiquid contracts. | ||||||||||||||
| Settlement methodology | Cash settled through the NSE. | ||||||||||||||
| Contract size | One options contract equals 1 underlying single stock futures contract. | ||||||||||||||
| Minimum price movement (Quote spread) |
In Kenyan Shillings per two decimal places. (KES 0.01) |
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| Mark-to-market | Explicit daily. This is based on the volume weighted average price of the underlying for liquid contracts, and the theoretical price (spot + cost of carry) for illiquid contracts. | ||||||||||||||
| Market trading times | As determined by the NSE (09H00 to 15H00) local Kenyan time. | ||||||||||||||
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Market fees
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The percentages indicated above will be used to calculate the fees based on the notional contract value. |
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Benefits of trading NEXT options on Futures
- Leverage: Control a large position with a relatively small investment.
- Risk Management: option holders are protected from adverse movements in the market whereby risk is limited to the premium paid while potential gains are
- Investors can incorporate options trading strategies to their portfolio’s to enhance returns and manage market risk.
- Flexibility: Implement various strategies to profit in different market conditions.
