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Delta Position Limits

A rule pertaining to option position limits has been approved by the SEC (the Delta-Based Position Limit Exemption), which allows participating firms to use option-delta based limits on position size rather than the standard position limits. This rule allows an exemption from equity option position and exercise limits for positions that are "delta neutral" under a "permitted pricing model."

The term "delta neutral" refers to an equity option position that is hedged by a position in the underlying security for the purpose of offsetting the risk that the value of the option position will change in response to incremental changes in the price of the security underlying the option position.

In support of delta position limits, OCC will provide subscribers with an OCC generated delta value for each option. The delta values are calculated using OCC's proprietary option pricing model that is a variation of the Cox-Ross-Rubinstein binomial model and is used in the delta calculation as follows:

Delta = (V{S+dS} - V{S-dS}) / 2 * dS

  • dS is a small change to the underlying price ($0.000001)
  • V{S+dS} is the option mark price at a higher underlying price (ceteris paribus)
  • V{S-dS} is the option mark price at a lower underlying price (ceteris paribus)

The delta values can be obtained from OCC's Prices Data Service records. Firms wishing to subscribe to this information should contact their Member Services representative (memberservices@theocc.com) or Risk Systems (risksystems@theocc.com) for more information. The fees associated with subscribing for this data are published under OCC's Schedule of Fees. For firms currently subscribed to the Prices Data Service records, there are no additional fees.

Additionally, the Delta-Based Position Limit Exemption rule requires that members submit data related to position limits to the exchanges. As an additional service, OCC will provide the facility for firms to submit their information to the exchanges, where by OCC will receive this data from firms and aggregate it into a single report, which will be made available to the exchanges. Technical descriptions of this process can be obtained from OCC's website and any clearing member interested in utilizing this service should contact their Member Services representative (memberservices@theocc.com).

SEC Approval Order

Documentation