ADRs and derivatives

Where can I find the current derivatives and prices of Yara derivatives that are traded on the Oslo Stock Exchange?

Information on all standardized derivatives can be found on the home page of Oslo Børs. The information is subject to a 15-minute delay.

How do I go about investing in Yara derivatives?

Yara derivatives can be traded through brokers who are members of either the Oslo Stock Exchange (Norway), Stockholmsbörsen (Sweden), or EDX in London (UK).

What are the ticker symbols of the Yara derivatives?

The Yara derivatives tickers start with the same three letters as the stock ticker (YAR), followed by digits and letters that denote the year and month of expiration, and the strike price.

Can I exercise the options before expiration?

Yes. The options traded are American, which means they can be exercised before expiration. European options, which are not exercisable before expiration, are not available for Yara.

What are the expiration months for Yara derivatives?

Yara derivatives expire in February, May, August and November each year. The date of expiration is always the third Thursday of the month on Oslo Børs. On any given date, Yara derivatives for the next two expiration periods will be tradable on the Oslo Børs, i.e. the maximum length until expiration will always vary from three to six months.

Am I entitled to dividend payments if I own Yara derivatives?

No. Owning derivatives does not entitle the holder to dividend payments in the underlying stock. In order to receive dividends, one must own the stock the day before the ex-dividend date.

Are derivatives risky investments?

Yes and no. Derivatives can be risky, but not necessarily. If the market moves against you, some derivatives positions have unlimited downside risk. The flip-side is that some positions also have unlimited upside potential. Liquidity risk should also be considered. If you are a novice in the world of derivatives, it is a good idea to seek advice from a broker before investing.

Can I use derivatives for hedging an investment in the Yara stock?

Yes. The Yara derivatives are excellent hedging tools to lower investment risk. For example, if you own Yara stock, you can buy put-options in order to limit your downside risk if the stock price decreases, or sell call options and receive money from the sale while giving away some of your upside potential if the stock price increases.

What are the advantages of investing in derivatives vs. investing in the Yara stock?

Derivatives offer more flexibility for the investor than investing in the stock. Derivatives also offer a good opportunity to leverage your investment.

Flexibility?

Derivatives can be combined in a number of different ways to suit the investor’s belief in the movement of the underlying stock, in this case Yara. With derivatives, you can make money if the stock price goes up, if the stock price goes down, or if the stock price is not moving much in either direction. Your broker can help you tailor a strategy that is consistent with your beliefs and analysis of the Yara stock.

Leverage?

Derivatives offer an inexpensive way to leverage your investment. Instead of buying the Yara stock, you can buy a Yara forward. The initial margin requirement when buying Yara forwards is 15% of the value of the contract when using NOS Clearing as clearinghouse, which means you control one share of Yara for only 15% of the price of the stock until expiration, when the remaining settlement is due. Another example is to buy call options: For a small premium, you control the right to buy Yara stock at an agreed upon price (strike price) at a certain point in the future (expiration date).

Is there any default risk involved when trading derivatives?

All standardized derivatives traded on the Oslo Stock Exchange are cleared through a clearinghouse. The clearinghouse guarantees the contracts and will fulfill the counterparty’s obligations in the case of a default, so that the clearinghouse is the de-facto counterparty for all contracts.

Will I know who the counterparties to my derivatives transactions are?

No. Unlike the stock market, the derivatives market is a closed market, so the identities of the buyers and sellers are unknown to the parties involved. The clearinghouse assumes all counterparty risk.

What is a market maker?

The market maker is committed to quote both a bid and an ask price with a limited volume (usually 20 contracts) in a specified number of derivatives. In the case of Yara, the market maker shows bid and ask prices in the options closest to the at-the-money (ATM) strike and two strikes above ATM and two strikes below ATM, plus bid and ask prices in the Yara forwards. Bid and ask prices for greater volumes can be requested of the market maker through your broker.

Who is the market maker in Yara derivatives?

DnBNOR Markets (Norway) and Timber Hill (UK) are currently the market makers in Yara derivatives.

What if my specific investment needs are not met by the standardized derivative securities tradeable on the stock exchange?

Your broker can create tailor-made solutions for investors who cannot find their products available among the standardized contracts. Contact your broker for more information.