Position Limits and Exercise Limits
Chapters in this video
- 0:00 Why position limits exist: stopping the cornered market
- 1:25 Same side of the market: bullish vs bearish aggregation
- 2:20 Worked example: 50,000 long calls plus 20,000 short puts
- 3:01 The three position limit tiers by volume and float
- 4:06 Broad-based vs narrow-based index option limits
- 4:48 Exercise limits and the rolling five-business-day window
- 6:24 Rapid-fire exam recap
What this video covers
- What "same side of the market" actually means: long calls plus short puts on the bullish side, long puts plus short calls on the bearish side
- How to aggregate a messy four-position portfolio against a position limit without falling for the "add everything together" trap
- The three position limit tiers (250,000, 200,000, and 75,000 contracts) and the trading volume and float criteria that place a stock in each
- Why broad-based index options such as the Standard and Poor's 500 (S&P 500) generally carry no position limits, while narrow-based industry indexes still do
- What exercise limits cap, and why the rolling five consecutive business day window is the only thing that distinguishes them from position limits
- Why exercise limits always equal position limits for the same underlying, so memorizing one number gives you both
- How a customer who maxes out an exercise limit on Monday is locked out for the rest of the rolling five-day window
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