Q: Does Terra Nova offer mutual funds?
A: Yes. For a complete listing of mutual funds, click here.

Q: How do I trade a mutual fund?
A: To place a trade for a mutual fund, you must call Terra Nova's Order Desk.

Q: What is the deadline to place a mutual fund order?
A: For a mutual fund to be executed at the current day's closing price, the order must be placed before 2:00 PM CST. If placed after 2:00 PM CST, the order will be executed at the next day's closing price.

Q: What is the difference between a mutual fund exchange and a mutual fund swap?
A: A mutual fund exchange is when you buy and sell within the same family of mutual funds. A mutual fund swap is when you buy and sell from two different fund families.

Q: What is an option?
A: An option is a security (not an equity) that gives the owner the right to buy or sell property at a specified price and time. Options are broken down into two different classes: Calls and puts. A call option gives the owner of the call the right to buy the underlying property at a specified price and time. A put option gives the owner of the put the right to sell the underlying property at a specified price and time.

Q: How does a stock split affect my option contract?
A: When a stock splits 2 for 1, the strike price will decrease in half and the number of option contracts will double.

Customer A holds 1 contract XYZ March 60. XYZ splits 2 for 1. After the split, Customer A will hold 2 contracts XYZ March 30. It is important to note that the underlying number of shares per contract (100) will remain constant.

When a stock splits 3 for 2, the effect on the option contract differs from a 2 for 1 split.

Customer B holds 1 contract ABC June 30. ABC splits 3 for 2. After the split, Customer B will hold 1 contract ABC June 20 with an underlying share amount of 150 shares. Here is how this 3 for 2 split affected the option contact: The number of contracts remains the same. The split price is multiplied by the inverse of the split ratio (30 x 2/3 = 20). The underlying amount of shares is multiplied by the split ratio (100 x 3/2 = 150).

Q: May I purchase options on margin?
A: No. While option contracts are purchased in your margin account, they do not have any loan value. The maintenance requirement is 100%. Each contract must be paid in full.

Q: What are the hours for options trading?
A: Equity options may be traded from 9:30 AM to 4:00 PM EST. Index options may be traded from 9:30 AM to 4:15 PM EST. Options cannot be traded during the Extended Trading Session.

Q: What does an option symbol look like?
A: An option symbol is broken down into three components: the option root, the strike and the month.

ABCLR. This is an ABC December 90 call. The owner of one ABC December 90 call will have the right to purchase 100 shares of ABC stock at $90 per share (plus commissions), up to expiration in December. Alternatively, the holder of one ABC December 90 put (symbol ABCXR) will have the right to sell 100 shares of ABC stock at $90 per share (minus commissions), up to expiration in December.

Q: What is the basic underlying theory behind options?
A: The idea behind the purchase of a call option from the example above is to be bullish on the underlying property. In the example above, the holder of a call option expects the price of ABC to appreciate because then the call option would appreciate in premium. The same goes for the put option only that the holder of the put would be bearish on the underlying property. If the price of ABC were to drop, the put option would increase in premium.

Q: What determines the option price and premium?
A: There are various elements that are involved when pricing an option such as: the underlying security price, the strike price of the option, the time remaining until the expiration of the option and the volatility of the underlying security.

The option premium consists of two aspects: Intrinsic value and time value. The intrinsic value is the amount that the option is in-the-money. The intrinsic value for calls would be the underlying stock price minus the strike price. For puts, the intrinsic value would equal the strike price minus the underlying stock price. The time value is the additional value of the option due to the time remaining until expiration and other factors such as volatility and economic factors.

Q: What does it mean to be “in” or “out-of-the-money?”
A: Being in-the-money relates to the intrinsic value of your option contract and is always done by the buyer of the option. A call option is in-the-money when the underlying security price is higher than the option strike price. A put is in-the-money when the underlying security price is lower than the option strike price. Conversely, a call option is out-of-the-money when the underlying security price is lower than the strike price. A put option is out-of-the-money when the underlying security price is higher than the strike price.

Q: What does it mean to exercise an option contract?
A: Exercising an option contract demands the right granted under the terms of the contract and is always done by the buyer of the option. If a call option is exercised, the writer of the call option must deliver the underlying shares of stock to the buyer of that option contract at the stock price. If a put option is exercised, the buyer of the put option will sell the underlying stock position to the writer of the put option at the strike price. Only the buyer of the option contract will always have the option or right to exercise the contract. If the contract is out-of-the-money at expiration, the option will expire worthless or can be sold prior to expiration. An option contract will be automatically exercised if the option is ¾ of the point or more in-the-money at expiration.

Q: When does an option expire?
A: Option contracts expire on the Saturday after the third Friday of the trading month. This applies to both call and put options.

Q: How many option contracts may I purchase at Terra Nova Trading?
A: You may purchase up to 300 contracts over the Internet with one click. When placing over 300 contracts, you must place the trade through the trade desk.

Q: What kind of options may I trade at Terra Nova Trading?
A: The following option strategies are available at Terra Nova: buying calls and puts to open, selling calls and puts to close, selling covered calls, spreads and straddles. Based upon your prior options experience and further information that you provide to us on your options application, you may or may not be approved for any/all of these strategies. Covered calls, spreads and straddles are placed through the Terra Nova Order Desk.

Q: What does it mean when an option is covered or naked?
A: A covered option is an option contract written (sold) against an underlying stock position that is owned by the contract writer. A naked option is an option contract that is written without owning an underlying stock position.

Q: What increments do the option premiums trade in?
A: In terms of decimals, option contracts valued from .05 to 2.95 trade in 5-cent increments. Options contracts valued above 3 will trade in 10-cent increments.

Q: What are spread and straddle option strategies? Can I use them?
A: These types of option strategies are more complex and are offered upon approval. For more information on option strategies, refer to the Options Clearing Corporation Web site at: http://www.optionsclearing.com.

Q: What is the difference between an American style and a European style option?
A: An American style option contract can be exercised at any time before the expiration date. Most options traded on an exchange are traded American style. A European style option contract can only be exercised on the expiration date.

Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies of this document are available from Terra Nova Financial, LLC, 100 S. Wacker Drive, Suite 1550, Chicago, IL 60606. A prospectus, which discusses the role of The Options Clearing Corporation, is also available on request for no charge. Contact The Options Clearing Corporation, 440 S. LaSalle Street, 24th Floor, Chicago, IL 60605. The documents available discuss exchange-traded options issued by The Options Clearing Corporation and are intended for educational purposes only. No statement in the documents should be construed as a recommendation to buy or sell a security or to provide investment advice.

Options are not suitable for all investors. You must balance the opportunities of options trading with the corresponding risks involved. You should discuss tax treatment of the possible options strategies with your tax advisers prior to undertaking such transactions. Exercise and/or closing transactions are subject to commission charges. Interest charges are incurred where the underlying securities are purchased on margin.

Q: How do you exercise an option?
A: You can exercise your options by calling our Trade Desk before the exercise cutoff times:

At 4:10 PM ET on the third Friday of the month of expiration for listed equity and broad based index options.


At 4:10 PM ET on the Thursday before the third Friday of the month of expiration for selected index options.

When you own an option that is about to expire in-the-money, our clearing firm may, at its sole discretion and without notification to you, exercise any index options that are $.01 or more in-the-money and any equity options $.05 or more in-the-money. Whether or not your equity options are $.05 in-the-money, you should always contact a Client Services representative to ensure that your options will be exercised should you wish to exercise your options. If the option is not in the money and you do not exercise the contract by the expiration date, the option will be worthless.

To exercise your options, Terra Nova generally requires that your account contain buying power equal to or greater than the required margin of the underlying securities. Terra Nova may, however, carry out the exercise even if your account does not contain full funds, in which case you are still responsible for the resulting transaction and for submitting funds that meet stated requirements.

If there are insufficient funds in your account to exercise your long equity options, Terra Nova, at its discretion, may liquidate long option positions on the last trading day preceding expiration.

If you choose to exercise a call, you must have the cash or buying power to purchase the stock unless you place a market sell order with a broker when you are exercising the option.

If you exercise an option or your option gets exercised, there will be a charge of $25.00 per assignment.

Q: Can I email my option exercise request?
A: The trade desk cannot accept option exercise instructions via e-mail.

Q: What is assignment?
A: When an option you've written gets exercised, you are said to have been "assigned" the option. If you are assigned, you must fulfill your obligation as an option writer either by buying or selling shares at the strike price stipulated in the option contract. Terra Nova Financial, LLC receives assignment instructions from the OCC (Options Clearing Corporation) and randomly assigns individual brokerage accounts.

Q: What happens when an option you've written gets exercised?
A: If you've been assigned, Terra Nova will notify you as follows:
You will receive an email message informing you that you've been assigned. This message will identify the specific contract.
Once your account has been assigned, you will be able to view the assignment details in RealTick®. The day after the assignment, the Comprehensive Report will the results of the assignment.

There are two types of approaches to treating option expirations in use today: The American Exercise Style and the European Exercise Style.

The American Style allows option owners to exercise their options at any time up to and including the last business day before expiration.


The European Style on the other hand allows the owner to exercise the option only during a specified period prior to its expiration. Usually, that period is between 1 and 5 days.