Make the most of your options trading experience.
The tools and resources you need to better manage risk and generate income.
Whether you’re new to options trading or already an experienced trader, Scotia iTRADE offers you platforms, tools and resources to help you execute your strategy with confidence:
- Detailed Options Chains with quotes and customizable filters
- Options Analytics with Theoretical value, implied volatility and Greeks
- Predefined options screeners showing you the Canadian and US most actives by volume, price and percentage gainers, and price and percentage losers
- Electronic order entry of covered and uncovered calls and puts
- Consolidated quotes from the Options Price Reporting Authority (OPRA)
- Commissions start from $4.99* + $1.25/contract
View our Options fees and our entire Commission & Fee Schedule.
An option is a contract enabling the purchase or sale of a specific security at a specific price during a specific time period. In the options market, the two words, "option" and "contract" mean the same thing and they are used interchangeably.
Options and Risk
Options involve risk and are not suitable for all investors. Prior to buying or selling an option, you must be approved for option trading and have reviewed the Options Account Agreement, contained in the Scotia iTRADE Terms and Conditions. Copies of this document are available by clicking here.
Holders and Writers
The purchaser of an opening position in an options contract is called the "buyer" or "holder." The buyer is also said to be "long" the option or have a "long position" in the option. The buyer pays a premium in order to buy the option, which gives them a right that they can exercise during the life of the contract.
The investor who sells the contract to open is called the "seller" or "writer." The writer is also said to be "short" the option or have a "short position" in the option and is obliged to perform if/when the holder exercises his right. The writer receives a premium for writing the option, as compensation for the obligation they have taken on.
When the Number of Shares and Strike Price Can Change
Although most of the time each contract represents 100 shares of the underlying stock at a specified strike price, there are times when the strike price, the number of shares deliverable or both can change depending on such events as stock splits and stock dividends.
The "premium" is the dollar amount that a buyer pays to a writer for the right to purchase or sell a specified quantity of the underlying security, at a specified price, for a specific time period.
The most familiar options are those issued on common stock. These are known as "equity options." Most of the discussion here focuses on equity options. Please note, however, that options are also available on other types of securities including major equity indexes such as the S&P 500.
There are two types of option contracts: a "Call" and a "Put."
Calls: If you buy a Call, you are buying a contract that gives you the right to buy 100 shares (usually) of a specific stock (the "underlying" security) from the option writer at a specific and fixed price (the "exercise" or "strike" price) at any time up to the expiration date (as determined by the expiration month of the option you buy). If you write a call, you are accepting the obligation to sell the stock to the call buyer at the strike price at any time up to the expiration date (as determined by the expiration month of the option you sell).
Puts: If you buy a Put, you are buying a contract that gives you the right to sell 100 shares (usually) of a specific stock to the put writer at any time up to the expiration date (as determined by the expiration month of the option you buy). If you write a put, you are accepting the obligation to buy stock from the put buyer at the strike price at any time at the buyer's discretion up to the expiration date (as determined by the expiration month of the option you sell).
An option contract that can be exercised at any time between the date of purchase and the expiration date. Most exchange-traded options are American style.
The receipt of an exercise notice by an options writer that requires him to sell (in the case of a call) or purchase (in the case of a put) the underlying security at the specified strike price.
At the money
An option is at-the-money if the strike price of the option is equal to the market price of the underlying security. For example, if xyz stock is trading at 54, then the xyz 54 option is at-the-money.
An option contract that gives the holder of the option the right (but not the obligation) to purchase, and obligates the writer to sell, a specified number of shares of the underlying stock at the given strike price, on or before the expiration date of the contract.
A transaction in which the purchaser's intention is to reduce or eliminate a short position in a stock, or in a given series of options.
A transaction in which the seller's intention is to reduce or eliminate his long position in a stock, or a given series of options.
A short call option position in which the writer owns the number of shares of the underlying stock represented by the option contracts. Covered calls generally limit the risk the writer takes because the stock does not have to be bought at the market price, if the holder of that option decides to exercise it.
A put option position in which the option writer also is short the corresponding stock or has deposited, in a cash account, cash or cash equivalents equal to the exercise price of the option. This limits the option writer's risk because money or stock is already set aside. In the event that the holder of the put option decides to exercise the option, the writer's risk is more limited than it would be on an uncovered or naked put option.
Securities that give the holder the right to buy or sell a specified number of shares of stock, at a specified price for a certain (limited) time period. Typically one option equals 100 shares of stock.
An option contract that can only be exercised on the expiration date.
To implement the right of the holder of an option to buy (in the case of a call) or sell (in the case of a put) the underlying security.
An expiration cycle relates to the dates on which options on a particular security expire. As an example, a given option may be placed in 1 of 3 cycles; the January cycle, the February cycle, or the March cycle. At any point in time, an option may have contracts with 4 expiration dates outstanding, 2 in near-term months and 2 in far-term months.
The last day (in the case of American-style) or the only day (in the case of European- style) on which an option may be exercised. For stock options, this date is the Saturday immediately following the 3d Friday of the expiration month; however, brokerage firms may set an earlier deadline for notification of an option holder's intention to exercise. If Friday is a holiday, the last trading day will be the preceding Thursday.
A "call" option is in-the-money if the strike price is less than the market price of the underlying security. A "put" option is in-the-money if the strike price is greater than the market price of the underlying security. For example, an xyz "call" option with a 52 strike price is in-the-money when xyz trades at 52.01 or higher. An xyz "put" option with a 52 strike price is in-the-money when xyz is trading at 51.99 or lower.
Margin requirement (options)
The amount of cash an uncovered (naked) option writer is required to deposit and maintain to cover his daily position valuation and reasonably foreseeable intra- day price changes.
A transaction in which the purchaser's intention is to create or increase a long position in a given series of options.
A transaction in which the seller's intention is to create or increase a short position in a given series of options.
Gives the buyer the right, but not the obligation, to buy or sell stock at a set price on or before a given date. Investors, not companies, issue options. Investors who purchase call options expect the stock will be worth more than the price set by the option (the strike price), plus the price they paid for the option itself. Buyers of put options expect the stock's price will go down below the price set by the option.
Out of the money
A call option is out-of-the-money if the strike price is greater than the market price of the underlying security. A put option is out-of-the-money if the strike price is less than the market price of the underlying security.
The price of an option contract, determined on the exchange, which the buyer of the option pays to the option writer for the rights to the option contract.
An option contract that gives the holder the right to sell (or "put"), and places upon the writer the obligation to purchase, a specified number of shares of the underlying stock at the given strike price on or before the expiration date of the contract.
The stated price per share for which underlying stock may be purchased (in the case of a call) or sold (in the case of a put) by the option holder upon exercise of the option contract.
A short call option position in which the writer does not own shares of underlying stock represented by his option contracts. Also called a "naked" call, it is much riskier for the writer than a covered call, where the writer owns the underlying stock. If the buyer of a call exercises the option to call, the writer would be forced to buy the stock at market price.
A short put option position in which the writer does not have a corresponding short stock position or has not deposited, in a cash account, cash or cash equivalents equal to the exercise value of the put. Also called "naked" puts, the writer has pledged to buy the stock at a certain price if the buyer of the options chooses to exercise it. The risk is limited to the value of the stock that the writer must purchase in the event that the option is exercised.
Options: the security subject to being purchased or sold upon exercise of an option contract. For example, IBM stock is the underlying security to IBM options. Depositary receipts: The class, series and number of the foreign shares represented by the depository receipt.
Options involve risk, are not suitable for all investors and are intended for sophisticated investors. Before trading options, please carefully review the Options Account Agreement contained in the Customer Agreements and Disclosure Documents brochure.
To qualify for commissions of $4.99 flat per Canadian or US equities trade and $4.99 + $1.25/contract for each options trade, you must, during the immediately preceding calendar quarter, execute at least 150 commission-generating equity or options trades. Accounts with less than 150 commission-generating trades within a calendar quarter will qualify for commissions of $9.99 flat per Canadian or US equities trade and $9.99 + $1.25/contract for each options trade. Commission-generating trades are buys and sells of: Equities, Options, Mutual Funds subject to commissions and Fixed Income instruments. Buys and Sells of GICs, ETFs which do not generate a commission, Canada Savings Bonds and Provincial Savings Bonds are examples of trades that are not commission-generating. You must re-qualify each calendar quarter. New qualification status will be effective on the second business day of the calendar quarter. Fees for US transactions are charged in US dollars.