EFTA01393102.pdf

and one representative of OCC, who votes only to break a tie. Every determination by an adjustment panel is within its sole discretion and is binding on all investors. PREMIUM—The premium is the price that the holder of an option pays and the writer of an option receives for the rights conveyed by the option. It is the price set by the holder and writer, or their brokers, in a transac- tion in an options market where the option is traded. tt is not a standardized term of the option. The premium does not constitute a "down-payment." It is simply and entirely a nonrefundable payment in full—from the option holder to the option writer—for the rights con- veyed by the option. The premium is not fixed by the options markets or by OCC. Premiums are subject to continuous change in response to market and economic forces, including changes in the trading conditions on the markets where the particular options are traded. The factors which may generally affect the pricing of an option include such variables as the current value of the un- derlying interest and the relationship between that value and the exercise price, the current values of re- lated interests (e.g., futures on the underlying interest or other interests related to the underlying interest), the style of the option, the individual estimates of market participants of the future volatility of the underlying interest, the historical volatility of the underlying inter- est, the amount of time remaining until expiration. cash dividends payable on the underlying stock (in the case of stock and stock index options), current interest rates, current currency exchange rates (in the cases of foreign currency options and options whose premiums or cash settlement amounts are payable in a foreign currency), the depth of the market for the option. the effect of supply and demand in the options market as well as in the markets for the underlying interest and for related interests. the information then available about current prices and operations in the markets for the underlying interest and related interests, the individual estimates of market participants of future develop- ments that might affect any of the foregoing, and other factors generally affecting the prices or volatility of op- tions, underlying interests, related interests or securi- ties generally. Also see the discussion below of "Intrinsic Value and Time Value." Readers should not assume that options premiums will necessarily con- form or correlate with any theoretical options pricing 11 CONFIDENTIAL - PURSUANT TODEIESCRPCM196496 P. 6(e) CONFIDENTIAL SDNY_GM_00244680 EFTA01393102