Flexible Exchange Option (FLEX)
What Is a Flexible Exchange Option?
Flexible exchange options, or FLEX options, are nonstandard options that permit both the writer and purchaser to arrange different terms. Terms that are negotiable incorporate the exercise style, strike price, and expiration date, as well as other elements and benefits. These options likewise offer investors the chance to trade on a bigger scale with expanded or disposed of position limits.
Grasping Flexible Exchange Option (FLEX)
FLEX options were made in 1993 by the Cboe Options Exchange (Cboe). The options focus on the over-the-counter (OTC) market of index options and give customers greater flexibility. FLEX options currently trade on other exchanges as well as the Cboe.
Beside permitting both the buyer and seller to tweak contract terms however they would prefer, FLEX options give other benefits. These benefits incorporate protection from counterparty risk associated with over-the-counter trading. Trades are guaranteed by the Options Clearing Corporation (OCC) as are other exchange traded options.
The market is likewise more competitive and transparent for increased liquidity. A secondary market permits buyers and sellers to offset positions before expiration. This secondary market eliminates a portion of the risks of trading in off-exchange markets.
A tremendous difference between FLEX options and traditional options is that FLEX options don't have a continuous quote stream. Therefore, the generation of a quote for FLEX options occurs just when a request for quote (RFQ) is made.
In 2007, the Cboe sent off CFLEX, an Internet-based, electronic trading system for index and equity FLEX options. Traders enter daily orders into the FLEX electronic book.
Parts of a FLEX Option Contract
The base size for a FLEX option is one contract. Strike prices might be in penny augments and may likewise be in the equivalent of a percentage of the underlying stock.
Representation of premiums might be in the value of specific dollar sums and are regularly in penny increases, or in percentages of the underlying stock.
An expiration date can be any business day and can be future-dated similar to a long time from the date of the trade. Expiration styles might be American or European. American expiration takes into consideration exercise whenever before the contract closes. European expiration grants exercise just at the expiration date.
Equity FLEX options, both puts and calls, settle with the delivery of shares of stock whenever exercised. Index FLEX options will get comfortable cash.
Position Limits for Flexible Exchange Options
There are no position limits for FLEX options on major market indexes, including the Dow Jones Industrial Average, Nasdaq-100, Russell 2000, S&P 500, and S&P 100. Be that as it may, there are reporting requirements assuming position sizes surpass certain limits.
The position limits for broad-based Index FLEX Options, other than those listed above, are 200,000 contracts, with contracts being on a similar side of the market for each given index.
There are no position limits for equity or ETF FLEX options, in spite of the fact that there are reporting requirements.
Features
- FLEX represents flexible exchange option.
- FLEX options are a particular sort of option offering extreme negotiable flexibility.
- These options don't have standard quote streams however distribute quotes exclusively by request.
