Customizing Equity FLEX Options
Pick Your Stock. Name Your Terms.
The choices are many for Equity FLEX Option users. FLEX options offer the ability to custom-tailor most contract terms, and to select from an array of actively traded underlying stocks. Most stock option classes that are listed at CBOE are eligible for FLEX trades. Contact your brokerage firm or CBOE for eligible classes. FLEX Options are the only exchange-listed equity options that allow users to select option contract terms.
FLEX Option terms that can be customized are:
The expiration date can be set for up to a maximum of 15 years from trade date, down to a minimum of one day (same-day expiration is not permitted for a newly created series). The expiration date specified must be a business day.
American or European style exercise can be specified.
Exercise prices and premiums may be stated in a dollar amount or percentage of the price of the underlying security, rounded to the nearest $.01.
One Equity FLEX option contract represents 100 shares of the underlying stock or Exchange Traded Fund.
Position and Exercise Limits, Settlement, Clearing and Margins
Position and Exercise Limits
Position and exercise limits on Equity FLEX options have been eliminated. However, reporting obligations apply for a position in excess of the standard limit for non-FLEX options in the same class. Also, if the Exchange determines that a higher margin requirement is necessary in light of the risks associated with a FLEX Equity option position in excess of the standard limit for Non-FLEX Equity options of the same class, the Exchange may consider imposing additional margin upon the account maintaining such under-hedged position.
For more details, visit CBOE Rule 24A.7 and 24B.7.
Exercising Equity FLEX Options
The exercise procedures for FLEX Equity Options are the same as standard equity options procedures. Exercise of FLEX Equity Options results in physical delivery of stock or shares of an Exchange Traded Fund on the next business day following tender of exercise notice. The minimum size for FLEX Equity Options exercises is 25 contracts or the participant's entire remaining position in the series, whichever is less. For stock splits, mergers, spin-offs, etc. contract adjustment procedures are the same as standard equity options procedures.
OCC Exercise-by-Exception processing procedures allow clearing member firms to exercise option contracts that are in-the-money by certain threshold amounts at expiration, without submitting individual instructions for each position to OCC, unless the clearing member has instructed OCC to exercise none, or fewer than all, of the option contracts. As of the date of these materials, the OCC threshold for Equity FLEX Options exercise is if an option contract has an exercise price below (in the case of a call) or above (in the case of a put) the exercise settlement value at expiration by $0.05 of a point or more in a clearing member's customer's account, unless the clearing member has instructed OCC otherwise. Customers should always check with their clearing firm for current exercise thresholds.
All Equity FLEX Options are settled by physical delivery (i.e., shares of the respective underlying stock or ETF).
Equity FLEX Options are generally subject to the same customer margin rules that apply to conventional listed options and FLEX options are eligible for portfolio margining accounts.
Uncovered writers of Equity FLEX Options have a margin requirement equal to 100% of option proceeds / current option market value plus 20% of the underlying value less any out-of-the-money amount, subject to a minimum of 100% of the option proceeds / current option market value plus 10% of the current underlying stock value in the case of calls or 10% of the put exercise price in the case of puts.
Spreads and combinations will be permitted for margin purposes between Equity FLEX Options with different exercise styles (American vs European) and/or conventional equity options on the same underlying security. Please be aware that pricing patterns may differ between European and American style options. Under certain circumstances, it is possible that the spread margin held by a carrying broker could become insufficient to cover the assignment obligation on the short option if the customer is unable to exercise the long European-style option and that option is trading at a discount to its intrinsic value. This can also occur between two European-style options with different expirations. Therefore, the carrying broker-dealer will most likely require higher margin for such spreads.
For questions concerning customer margin treatment or more details concerning the margin required for various trading strategies, please contact Jim Adams in the CBOE Department of Member Firm Regulation at 312-786-7718 for assistance.
The matters discussed in this section are subject to detailed rules, regulations, and statutory provisions which should be referred to directly for additional detail and are subject to changes that may not be reflected in this material.