Your guide to trading options on Canadian Depositary Receipts (CDRs)

Canadian Depositary Receipts (CDRs) make it possible for Canadian investors to trade fractional shares of well-known U.S. and global-listed stocks. CDRs trade in Canadian dollars on a Canadian exchange, allowing investors to avoid currency conversion costs when buying and selling. In addition, CDRs have an embedded currency hedge, so the effect of currency fluctuations on your investment return is reduced. Investors retain dividend and voting rights and CDRs are easy to buy and sell, trading like other shares on Canadian exchanges. Learn more About CDRs.

Options on CDRs are derivative instruments that give investors the right, but not the obligation, to buy or sell a CDR at a specified price before the option expires. These options can be used for various trading strategies, including hedging and speculation.

Not all CDRs may have options available. The availability of options depends on the liquidity and demand for the underlying CDR. Discover the currently available choices Opens a new window.. 

Options expiring weekly are available for up to the following five weeks. Monthly expiries are available for, at a minimum, the nearest four consecutive months and the next four months in the designated quarterly cycle: March, June, September and December. 

Let’s review the benefits and risks of trading CDR options.

Trade options on fractional shares of well-known U.S. listed stocks

One of the most significant advantages is the ability to trade options on fractional shares of well-known U.S. listed stocks. Options on this product allow you to consider a wider array of trading and hedging strategies that incorporate CDRs.

Trade in Canadian dollars

As with CDRs, CDR options trade in Canadian dollars, which eliminates the need for currency conversion when buying or selling. The timing and cost of currency conversions are eliminated, and investors can focus more clearly on investment strategy.

Versatile trading tools

Like all options, CDR options can be used for many different strategies. If you hold CDRs, you can generate potential income through the sale of covered calls or protect your portfolio from downside risk with protective puts. You can also use CDR options to speculate on bullish, bearish or neutral price movements from the underlying CDR. Trading strategies can be tailored to your specific investment goals and risk tolerance.

Market risk

Like most financial investments, trading CDR options comes with market risk. The value of the underlying CDR can fluctuate due to economic conditions, company performance, market sentiment or other factors. These fluctuations can affect the value of the CDR and, in turn, the CDR option, potentially leading to losses.

Options are leveraged instruments, meaning small changes in the price of the underlying CDR can lead to significant changes in the option's value. This can work both for and against the investor.

Liquidity risk

The liquidity of options on CDRs may be lower compared to options on more widely traded securities, potentially making it harder to enter or exit positions. The availability of buyers and sellers can affect your ability to execute trades at desired prices. In less liquid markets, you may face challenges in buying or selling CDR options without affecting the option’s market price.

Currency risk

While CDRs include built-in currency hedging, there is still some exposure to currency risk. Significant changes in exchange rates can affect the value of these investments and, in turn, the value of the linked options contracts. Although the hedging mechanism aims to mitigate this risk, it may not eliminate it.

Risk specific to options strategies

Depending on the option strategy you choose, there may be risks related to settlement, exercise and other option features. For more details, check out our course on How To Trade Options. Specifically, review Lesson 5, Some of the Main Risks of Buying Options.

Complexity and knowledge

Options trading, including CDR options, can be complex and may require a higher level of knowledge and experience compared to traditional stock trading. Understanding the various strategies, potential outcomes, and associated risks is crucial for successful trading.

Regulatory risk

Changes in regulations that affect either the CDRs or the options market can affect the value and attractiveness of these instruments.