Flexible Exchange Options, or FLEX options, allow investors to customize contract terms, including the exercise style, strike price, expiration date. These contracts are often used by investors when the traditional contract terms do not adequately address investment goals or strategies.
FLEX options are designed to offer investors the flexibility of Over-the-counter (OTC) options that enable institutional investors to customize contract terms with their contra-party that is often a major investment bank’s trading desk.
Components of a Flexible Exchange Option (FLEX)
The minimum size for a FLEX options contract is one contract. Strike prices may be in
penny increments and may also be in the equivalent of a percentage of the underlying
Premiums may be in the value of specific dollar amounts and are typically in penny
increments, or in percentages of the underlying stock.
An expiration date can be any business day and can be set as far in the future as 15
years from the date of the trade. Expiration styles may be American or European.
American expiration allows for exercise at any time before the contract ends.
European expiration permits exercise only at the expiration date.
Equity FLEX options, both puts, and calls settle with the delivery of shares of stock if
exercised. Index FLEX options settle in 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 Index, Russell 2000 Index, Standard &
Poor’s 500 Index, and S&P 100 Index. However, there are reporting requirements if position sizes exceed certain thresholds.