Option Trading Agreement
By using Questrade for the purchase, sale or execution of exchange traded put or call Options ('Options') traded on stock or Option exchanges, you agree to be bound by the following provisions and the provisions of the Client Account Agreement which are hereby incorporated by reference.
You are aware of the risks involved in both the purchase and the writing of options, whether or not undertaken in combination with the purchase or sale of other options or securities. You understand the rights and obligations associated with put and call option contracts and you are financially able to assume such risks and to sustain any losses resulting from such transactions.
Governing regulations
Each transaction executed for the Account will be subject to, and you will abide by, the prevailing bylaws, rules, regulations, policies and customs of the Regulatory Authorities. Each transaction will also be subject to our rules, regulations and customs for Options trading. You have read and understand the Risk Disclosure Statement for Futures and Options as applicable.
Compliance with regulations
The Regulations may provide for position limits, exercise limits, Margin requirements and requirements for cash only trades during certain periods such as the last 10 business days to expiry of an Option. You will, whether acting alone or in concert with others, comply with applicable Bylaws, Regulations, Rulings and Policies of the Canadian Investment Regulatory Organization and any exchange, clearing corporation or other organization on or through which the Option is traded or issued including without limitation, those respecting position limits and exercise limits; and give us timely instructions regarding the exercise or disposition of any Option position.
Discretion
With respect to any trading for the Account in Options. Questrade, may from time to time:
Reject any order placed by you;
Act through our market maker or Options attorney as principal on the other side of any transaction executed for you;
Require any transaction to be on a cash-only basis during the last 10 days prior to expiry of an Option;
Limit or restrict short positions of, or short sales by you;
Limit or restrict the timing by which Options orders or exercise instructions must be placed; or
Disclose your trading and positions to any responsible exchange, clearing corporation, Self Regulating Organization or other regulatory body.
Business hours and timely instructions
Our office, through which you may instruct us as to Option transactions, will be open during local business hours. An order may be executed at any time when the applicable exchange is open for trading. You will give us instructions in time for us to complete such instructions as to the sale, closeout or exercise of any Options or as to any other action to be taken in connection with such Options. With respect to expiring Options, you will instruct us by no later than 2:00 p.m. Eastern time on the business day preceding the expiry date of the Option or by such other time as we may advise by notice in writing to you. We may take any action with respect to an Option that we in our sole discretion determine should be taken if you fail to give us timely instructions.
Amendments to Rules
You acknowledge that rules may be enacted, amended or repealed by the Canadian Investment Regulatory Organization; any relevant exchange; or clearing corporation which may affect existing positions or subsequent transactions.
Exercise Assignment Notices
You acknowledge that exercise assignment notices are allocated by the relevant clearing corporation at any time during the day. Questrade will allocate such notices on a random basis unless you are notified otherwise by prior written notice. Questrade is not responsible for any delay with respect to the assignment by the clearing corporation or the receipt by us of such notices. You confirm that you will accept an allocation on such basis or on any other basis as we may advise you from time to time.
Liability
We will not be liable to you in any way for errors or omissions caused by persons, or by conditions, over which we have no control. You hereby waive any and all claims against Questrade, its Directors, Officers, Agents, or Employees for any damage or loss which may arise from or in any way be related to any refusal of Questrade to accept Security or Option trading instructions except as allowed for herein.
Absence of Instructions
If you fail to give us timely instructions then we may, but are not obliged to:
Exercise or sell any valuable Option on your behalf, in which case you will pay any resulting transaction costs;
Exercise on your behalf, for your Account and risk or sell or close out any expiring valuable Option.
Margin
You will at all times maintain such Margin as we may require from time to time. You will promptly meet all Margin calls.
Authorizations
While any Securities held in any of your Options Trading Accounts are retained by us as Collateral in accordance with Collateral and Lending Agreement of the Client Account Agreement, you authorize us without notice to you, to:
Pledge all or part of the Securities as Security for our own indebtedness;
Loan all or part of the Securities for our purposes or as our Security;
Use all or part of the Collateral for making delivery against a sale, whether short or otherwise, for our Account or that of any other of our Clients, and
Perform any credit checks we deem necessary
Writing Covered Options
If you are authorized to write (sell) covered Call Option, then you must have the underlying Securities covered by any such Option in the Account, or an acceptable escrow receipt made available to us evidencing ownership of such Securities and their availability to us upon exercise of the Option at the time of writing such Options. You will not sell or withdraw from the Account such Securities or any Securities accruing thereto during the term of such Options and acknowledge that you may prohibit the withdrawal from the Account of any cash dividends or other cash distributions accruing thereon during the term of such Options.
Writing Uncovered Options
If you are authorized to write uncovered (sell short) Put or Call Options, then prior to doing so you will have in the Account any Margin required by us.
Securities
The term 'Securities' as used in the Client Account Agreement and in this Agreement includes shares of stock, warrants or rights, Options, bonds, notes, debentures, trust and deposit certificates, commodities (including contracts relating to commodities), gold and all other rights to property of any nature or kind. 'Securities' include those belonging to you that are in our possession or control, or in transit to or from us.
Advice of Any Changes or Restrictions
You agree to advise us of any restrictions in Option trading that may apply to you and you will advise us of any changes in such restrictions.
Protection of Your Position
In case of any insolvency, death or attachment of any property, we may, with respect to any open positions, take such steps as we consider necessary to protect ourselves against loss. Whenever we consider it necessary for our protection to sell any Securities in our possession or to buy in any Securities of which your Account may be short, or to buy or sell short Options for your Account and your risk, such sale or purchase may be made in our sole discretion without advertising the same and without prior notice, demand, tender or call to you.
Correction of Errors
We are entitled to correct any error in filling an order to buy or sell an Option at market by filling such order at the market price in effect at the time such order should have been filled.
Waivers
None of the provisions of this Options Trading Agreement will under any circumstances be considered to have been waived, modified or otherwise affected except by Agreement in writing signed on our behalf by our Designated Registered Options Principal or our Alternate Registered Options Principal. Our failure to exercise any of our rights in any one or more instances shall not be considered to be a waiver of any such rights for the future.
Amendments
This Agreement may be amended at any time by us if we give you notice in writing of the amendment.
The first transaction in your Account following notification of an amendment to this Agreement will be considered your acceptance of the amendment as of the effective date set out in the notice. This Agreement will continue in force until terminated by you as acknowledged in writing by our officer or until written notice of termination by us has been delivered to you.
If any statute or any statutory regulation or any bylaw, rule, regulation, policy or custom of the Regulatory authorities is enacted, made, amended or otherwise changed with the result that any term or condition of this Agreement is, in whole or in part, invalid, then such term or condition will be deemed to be varied or superseded to the extent necessary to give effect to such statute, regulation, bylaw, rule, policy or custom. Any term or condition of this Agreement which notwithstanding any such variation is invalid shall not invalidate the remaining terms and conditions hereof.
General
This Agreement shall be considered as supplementary to any other Client Agreement. This Agreement is in respect of all Option and Security transactions in your Account including Accounts previously opened, opened in the future or from time to time closed and then reopened or renumbered.
This Agreement shall ensure to the benefit of Questrade and be binding on us and on our successors and assigns and on the Client's successors, executors, administrators, assigns, and legal representatives.
Whenever this Agreement entitles us to alternative courses of action, we shall be entitled to choose any, none or all of such alternatives at our sole and unfettered discretion.
Effective Time
This Agreement will be effective and binding upon you for Option trading only after approval by Questrade has been given and for the granting of any Margin from the time at which Questrade first acts upon your instructions.
Receipt of Risk Disclosure or Statement
You confirm that you have received the Risk Disclosure Statement for Futures and Options as applicable, which have been approved by the provincial Securities administrators or other regulatory authorities responsible in each jurisdiction.
Option Exercise and Assignment Policies
Questrade clients who trade options must review the Questrade option exercise & assignment procedures listed below:
In accordance with CDCC and OCC regulations, long equity and index option contracts will be automatically exercised if those positions are "in-the-money" by $0.01 or more at the time of expiration. Short equity and index option contracts will generally be assigned if they are "inthe-money" by $0.01 or more at the time of expiration. However, all expiring "American style options" may be exercised or assigned at any time during the life of the contract, even if they are "out of the money".
Long Equity Option Holders
If, on the expiration date, there is an expiring long Option position(s) in your Account, that is at risk of being automatically exercised, you should ensure one of the following conditions have been met: You have sufficient buying power to assume the equity position(s); or You have the required underlying equity position and overnight buying power to satisfy any delivery requirements. If you do not satisfy one of the requirements listed above, Questrade may at its discretion, without notice to you, liquidate your position(s) on the expiration date. Questrade may also liquidate any option position, whose automatic exercise would result in a short position in a registered account or whose exercise would result in an underlying position carrying undue or operational risks/concerns. If Questrade fails to liquidate all such contracts by market close, and your Options are automatically exercised, you are responsible for any long or short equity position(s) resulting from automatic exercise, and you assume any market risk associated with those positions. Questrade reserves the right to not allow your “in-the-money” Options to be exercised. If your “in-the money” Options are not exercised, any closing value they have may be lost.
Short Equity Option Holders
If, on the expiration date, you have expiring short Option position(s) in your Account that are at risk of being assigned, you should ensure one of the following conditions have been met: You have sufficient buying power to assume the equity position(s); or You have the required underlying equity position and buying power to satisfy any delivery requirements. If you do not satisfy one of the requirements listed above, Questrade may at its discretion, without notice to you, liquidate on the expiration date, Option contracts that may be vulnerable to assignment. If Questrade fails to liquidate all such contracts by market close, and your Options are assigned, you will be held liable for any resulting long or short equity position(s), and you will assume any market risk associated with those position(s). Questrade may also liquidate any option position, whose assignment would result in a short position in a registered account or whose assignment would result in an underlying position carrying undue or operational risks/concerns. At its discretion, Questrade may take protective action to address the risk of a potential assignment of a short option position by purchasing or selling the underlying equity. In the event that Questrade has taken protective action and you are not assigned, you will be liable and could suffer losses or incur an investment result that was not your objective. If you have any questions regarding these policies, or any other Options related issues, please do not hesitate to contact one of our Option specialists by either dialing 1.888.QUEST.66 (1.888.783.7866) or emailing [email protected].
Risk Disclosure Statement for Futures and Options
This brief statement does not disclose all of the risks and other significant aspects of trading in Futures and Options. In light of the risks, you should undertake such transactions only if you understand the nature of the contracts (and contractual relationships) into which you are entering and the extent of your exposure to risk. Trading in Futures and Options is not suitable for many members of the public. You should carefully consider whether trading is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances.
Futures
Effect of 'Leverage' or 'Gearing'
Transactions in Futures carry a high degree of risk. The amount of initial Margin is small relative to the value of the Futures contract so that transactions are “leveraged” or “geared”. A relatively small market movement will have a proportionately larger impact on the funds you have deposited or will have to deposit: this may work against you as well as for you. You may sustain a total loss of initial Margin funds and any additional funds deposited with the firm to maintain your position. If the market moves against your position or Margin levels are increased, you may be called upon to pay substantial additional funds on short notice to maintain your position. If you fail to comply with a request for additional funds within the time prescribed, your position may be liquidated at a loss and you will be liable for any resulting deficit.
Risk-Reduction Orders or Strategies
Transactions in Futures carry a high degree of risk. The amount of initial Margin is small relative to the value of the Futures contract so that transactions are “leveraged” or “geared”. A relatively small market movement will have a proportionately larger impact on the funds you have deposited or will have to deposit: this may work against you as well as for you. You may sustain a total loss of initial Margin funds and any additional funds deposited with the firm to maintain your position. If the market moves against your position or Margin levels are increased, you may be called upon to pay substantial additional funds on short notice to maintain your position. If you fail to comply with a request for additional funds within the time prescribed, your position may be liquidated at a loss and you will be liable for any resulting deficit.
Options
Variable Degree of Risk
Transactions in Options carry a high degree of risk. Purchasers and sellers of Options should familiarize themselves with the type of Option (i.e. put or call) which they contemplate trading and the associated risks. You should calculate the extent to which the value of the Options must increase for your position to become profitable, taking into Account the premium and all transaction costs. The purchaser of Options may offset or exercise the Options or allow the Options to expire. The exercise of an Option results either in a cash settlement or in the purchaser acquiring or delivering the underlying interest. If the Option is on a Future, the purchaser will acquire a Futures position with associated liabilities for Margin (see the section on Futures above). If the purchased Options expire worthless, you will suffer a total loss of your investment which will consist of the Option premium plus transaction costs. If you are contemplating purchasing deep-out-of-themoney Options, you should be aware that the chance of such Options becoming profitable ordinarily is remote. Selling (“writing” or “granting”) an Option generally entails considerably greater risk than purchasing Options. Although the premium received by the seller is fixed, the seller may sustain a loss well in excess of that amount. The seller will be liable for additional Margin to maintain the position if the market moves unfavourably. The seller will also be exposed to the risk of the purchaser exercising the Option and the seller will be obligated to either settle the Option in cash or to acquire or deliver the underlying interest. If the Option is on a Future, the seller will acquire a position in a Future with associated liabilities for Margin (see the section on Futures above). If the Option is “covered” by the seller holding a corresponding position in the underlying interest or a Future or another Option, the risk may be reduced. If the Option is not covered, the risk of loss can be unlimited. Certain exchanges in some jurisdictions permit deferred payment of the Option premium, exposing the purchaser to liability for Margin payments not exceeding the amount of the premium. The purchaser is still subject to the risk of losing the premium and transaction costs. When the Option is exercised or expires, the purchaser is responsible for any unpaid premium outstanding at that time.
Additional Risks Common to Futures and Options
You should ask the firm with which you deal about the terms and conditions of the specific Futures or Options which you are trading and associated obligations (e.g., the circumstances under which you may become obligated to make or take delivery of the underlying interest of a Futures contract and, in respect of Options, expiration dates and restrictions on the time for exercise). Under certain circumstances the specifications of outstanding contracts (including the exercise price of an Option) may be modified by the exchange or clearing house to ref lect changes in the underlying interest.
Suspension or Restriction of Trading and Pricing Relationships
Market conditions (e.g. liquidity) and/or the operation of the rules of certain markets (e.g. the suspension of trading in any contract or contract month because of price limits or “circuit breakers”) may increase the risk of loss by making it difficult or impossible to effect transactions or liquidate/offset positions. If you have sold Options, this may increase the risk of loss. Further, normal pricing relationships between the underlying interest and the Future, and the underlying interest and the Option may not exist. This can occur when, for example, the Futures contract underlying the Option is subject to price limits while the Option is not. The absence of an underlying reference price may make it difficult to judge “fair” value.
Deposited Cash and Property
You should familiarize yourself with the protections accorded money or other property you deposit for domestic and foreign transactions, particularly in the event of a firm insolvency or bankruptcy. The extent to which you may recover your money or property may be governed by specific legislation or local rules. In some jurisdictions, property which had been specifically identifiable as your own will be prorated in the same manner as cash for purposes of distribution in the event of a shortfall.
Commissions and Other Charges
Before you begin to trade, you should obtain a clear explanation of all commission, fees and other charges for which you will be liable. These charges will affect your net profit (if any) or increase your loss.
Transactions in Other Jurisdictions
Transactions on markets in other jurisdictions, including markets formally linked to a domestic market, may expose you to additional risk. Such markets may be subject to regulation which may offer different or diminished investor protection. Before you trade you should enquire about any rules relevant to your particular transactions. Your local regulatory authority will be unable to compel the enforcement of the rules of regulatory authorities or markets in other jurisdictions where your transactions have been effected. You should ask the firm with which you deal for details about the types of redress available in both your home jurisdiction and other relevant jurisdictions before you start to trade.
Currency Facilities
The profit or loss in transactions in foreign currency-denominated contracts (whether they are traded in your own or another jurisdiction) will be affected by fluctuations in currency rates where there is a need to convert from the currency denomination of the contract to another currency.
Trading Facilities
Most open-outcry and electronic trading facilities are supported by computer-based component systems for the order routing, execution, matching, registration or clearing of trades. As with all facilities and systems, they are vulnerable to temporary disruption or failure. Your ability to recover certain losses may be subject to limits on liability imposed by the system provider, the market, the clearing house and/or member firms. Such limits may vary; you should ask the firm with which you deal for details in this respect.
Electronic Trading
Trading on an electronic trading system may differ not only from trading in an open-outcry market but also from trading on other electronic trading systems. If you undertake transactions on an electronic trading system, you will be exposed to risks associated with the system including the failure of hardware and software. The result of any system failure may be that your order is either not executed according to your instructions or is not executed at all. Your ability to recover certain losses which are particularly attributable to trading on a market using an electronic trading system may be limited to less than the amount of your total loss.
Off-Exchange Transactions
In some jurisdictions, and only then in restricted circumstances, firms are permitted to effect off-exchange transactions. The firm with which you deal may be acting as your counterparty to the transaction. It may be difficult or impossible to liquidate an existing position, to assess the value, to determine a fair price or to assess the exposure to risk. For these reasons, these transactions may involve increased risks. Off-exchange transactions may be less regulated or subject to a separate regulatory regime. Before you undertake such transactions, you should familiarize yourself with applicable rules.