FLEX® Options Explained

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    The Best Binary Options Broker 2020!
    Good for Beginners!
    Free Education + Free Demo Account!
    Get Your Sign-Up Bonus Now!

  • Binomo
    Binomo

    Only For Experienced Traders!

FLEX® Options

FLexible EXchange® Options, or FLEX® Options, were introduced by CBOE in 1993. They were designed to give institutional investors greater access to customized derivatives. FLEX® options provide customization features similar to over-the-counter (OTC) options but with the convenience and guarantee of exchange-traded options.

Similar to OTC options, FLEX® options allow contractual terms such as expiration date, exercise price, style and contract size to be individually specified.

Unlike OTC options, FLEX® options are traded through the exchange, with the Options Clearing Corporation (OCC) being the issuer and guarantor of all FLEX® option contracts. As the OCC is the largest derivatives clearing organization in the world as well as the first to be awarded a “AAA” credit rating from Standard & Poor, the trading of FLEX® options is considered to be virtually free of counterparty risk.

Index FLEX® Options

The first types of FLEX® options to be introduced were FLEX® option contracts on stock market indices and hence they are often simply referred to as FLEX® options. Index FLEX® options are available on all CBOE listed indices, including the following major indices:

Equity FLEX® Options

Following the success of Index FLEX options, CBOE launched FLEX® options on individual equities in 1995 and they were known as E-FLEX® options. E-FLEX® options are available on a wide range of actively traded underlying stocks and they include most option classes that are listed at CBOE.

You May Also Like

Continue Reading.

Buying Straddles into Earnings

Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results. [Read on. ]

Writing Puts to Purchase Stocks

If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]

What are Binary Options and How to Trade Them?

Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time. [Read on. ]

Investing in Growth Stocks using LEAPS® options

If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPS® and why I consider them to be a great option for investing in the next Microsoft®. [Read on. ]

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    The Best Binary Options Broker 2020!
    Good for Beginners!
    Free Education + Free Demo Account!
    Get Your Sign-Up Bonus Now!

  • Binomo
    Binomo

    Only For Experienced Traders!

Effect of Dividends on Option Pricing

Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]

Bull Call Spread: An Alternative to the Covered Call

As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]

Dividend Capture using Covered Calls

Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]

Leverage using Calls, Not Margin Calls

To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]

Day Trading using Options

Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]

What is the Put Call Ratio and How to Use It

Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. [Read on. ]

Understanding Put-Call Parity

Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]

Understanding the Greeks

In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]

Valuing Common Stock using Discounted Cash Flow Analysis

Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]

Choosing the Right Shaft Flex in Your Golf Clubs

Understanding Golf Club Shaft Flex Can Help Improve Your Scores

If you want to avoid giving your golf game the shaft, you need to understand the effect that golf club shaft flex has on your game.

“Flex” refers to the ability of a golf shaft to bend as forces are applied to it during the golf swing. Those forces are generated by the type of swing that you have: fast or slow, smooth or jerky.

There are five generally used ratings for shaft flex: Extra Stiff, Stiff, Regular, Senior and Ladies, usually denoted by the letters X, S, R, A and L (“A” is used for Senior because this flex was originally called “amateur”).

Having a flex that doesn’t match the needs of your swing will result in the clubface being misaligned at impact, causing your shots to go off-target.

What Shaft Flex Impacts

Shaft flex impacts, either directly or indirectly, the accuracy, trajectory and distance of your shot. Three pretty important things in golf.

As the shaft flexes throughout the swing, the position of the clubhead changes. And the face of the club must be square (perfectly straight, or parallel to the target line) at impact to get the most out of the shot. If you have the wrong flex for your swing, there is less chance that you’ll make contact with the ball with a square clubface.

Some General Guidelines About Shaft Flex

The degree of flex in your club shafts is something you control. You can choose to buy stiffer shafts, or softer shafts, depending on your needs.

But how can you tell what you need? Here are some general guidelines:

  • Take a look at the distance you hit your driver. This is a good, but very general, indicator. If you carry you driver 250 yards or more, go with Stiff; 230-250 yards, Regular; 200-230 yards, Senior; less than 200 yards, Ladies. Only the biggest of the big hitters is going to need Extra Stiff. For most of us, Extra Stiff isn’t even in the picture.
  • If you have a very smooth swing, you might benefit from a softer flex even if you swing fast. A swing that gets jerky at the top—when transitioning into the downswing—will probably need a stiffer shaft.
  • If your drives go left, you might benefit from a stiffer flex; if your drives go right, you might benefit from a softer flex.

If Your Shaft Flex Is Too Stiff .

What effect does a too-stiff shaft have on your golf game?

  1. The ball will probably fly lower and shorter for any given loft, compared to a properly fit shaft.
  2. The ball may tend to go to the right, or fade side, for right-handed golfers because with a too-stiff shaft the clubface is harder to square (the clubface is more likely to be open at impact, in other words).
  3. The shot may feel less solid, more like a mishit even if you make contact on the center of the clubface.

If Your Flex Isn’t Stiff Enough .

  1. The ball might fly higher for any given loft, compared to a properly fit shaft.
  2. The ball may tend to go left, or to the draw side, for a right-handed golfer (because with a too-flexible shaft, the clubhead may tend to come into the ball closed).
  3. Shots may tend to feel more solid, even when they aren’t.

Oh, Those Macho Men

Men like to hit golf clubs with Stiff shafts. It’s a guy thing. Unfortunately, it’s not always the smart thing.

No macho man wants to be seen hitting a wimpy little Regular flex club, or, Tiger Woods forbid, a Senior or Ladies flex.

But over-swinging is a common problem among male high-handicappers. Choosing a softer flex often has the effect of forcing macho men to slow down their swings. And slowing down the swing often makes those macho men into better golfers.

And the fact is, the harm in hitting a shaft that is too flexible is much less than the harm in hitting a shaft that is too stiff. As equipment guru Tom Wishon has said, when unsure about flex, always err on the side of more flex (meaning, a softer shaft). If you can’t decide between Regular and Stiff, go with Regular.

The Foolproof Way to Choose Shaft Flex

A clubfitting with a golf professional is the recommended way to choose the proper amount of flex in your golf clubs.

The pro will take a lot of measurements, watch your swing, measure your swing speed, watch your ball flight and be able to recommend the flex that is right for you.

Clubfittings are available at many pro shops and almost all golf schools and from teaching professionals, at courses and full-service driving ranges. Dedicated clubfitters are also becoming more common.

If a club-fitting isn’t in your future, the next best thing is a demo day. At demo days, you’ll be able to hit many different types of clubs with different types of shafts. Or find a good pro shop with swing bays where you can try before you buy.

The key, short of a club fitting, is hitting lots of different clubs and watching the effect that changing shaft flex has on your shots.

If you find a flex that feels good and produces a good ball flight, there’s a good chance that’s the right flex for you.

American vs. European Options: What’s the Difference?

American vs. European Options: An Overview

American and European options have similar characteristics but the differences are important. For instance, owners of American-style options may exercise at any time before the option expires.   On the other hand, major broad-based indices, including the S&P 500, have very actively traded European-style options, while owners of European-style options may exercise only at expiration. 

Key Takeaways

  • All optionable stocks and exchange-traded funds have American-style options while only a few broad-based indices have American-style options.
  • European index options stop trading one day earlier, at the close of business on the Thursday preceding the third Friday of the expiration month.
  • The settlement price is the official closing price for the expiration period, establishing which options are in the money and subject to auto-exercise.

American Options

All optionable stocks and exchange-traded funds (ETFs) have American-style options while only a few broad-based indices have American-style options. American index options cease trading at the close of business on the third Friday of the expiration month, with a few exceptions.   For example, some options are quarterlies, which trade until the last trading day of the calendar quarter, while weeklies cease trading on Wednesday or Friday of the specified week.

The settlement price is the official closing price for the expiration period, establishing which options are in the money and subject to auto-exercise. Any option that’s in the money by one cent or more on the expiration date is automatically exercised unless the option owner specifically requests his/her broker not to exercise. The settlement price for the underlying asset (stock, ETF, or index) with American-style options is the regular closing price or the last trade before the market closes on the third Friday. After-hours trades do not count when determining the settlement price.

Explaining American and European Options

With American-style options, there are seldom surprises. If the stock is trading at $40.12 a few minutes before the closing bell on expiration Friday, you can anticipate that 40 puts will expire worthlessly and that 40 calls will be in the money. If you have a short position in the 40 call and don’t want to be hit with an exercise notice, you can repurchase those calls. The settlement price may change and 40 calls may move out of the money, but it’s unlikely the value will change significantly in the last few minutes.

European Options

European index options stop trading one day earlier, at the close of business on the Thursday preceding the third Friday of the expiration month.

It is not as easy to identify the settlement price for European-style options. In fact, the settlement price is not published until hours after the market opens. The European settlement price is calculated as follows:

  • On the third Friday of the month, the opening price for each stock in the index is determined. Individual stocks open at different times, with some of these opening prices available at 9:30 a.m. ET while others are determined a few minutes later.
  • The underlying index price is calculated as if all stocks were trading at their respective opening prices at the same time. This is not a real-world price because you cannot look at the published index and assume the settlement price is close in value.

European-style options pose special risks for options traders, requiring careful planning to avoid systemic exposure.

Exercise Rights

When you own an option, you control the right to exercise. Occasionally, it may be beneficial to exercise an option before it expires, to collect a dividend, for example, but it’s seldom important. When you sell an American-style option, you sell the option without owning it and are assigned an exercise notice before expiration and are short the stock.

The only time an early assignment carries significant risk occurs with American-style cash-settled index options, suggesting the easiest way to avoid early-exercise risk is to avoid American options. If you receive an assignment notice, you must repurchase that option at the previous night’s intrinsic value, placing you at serious risk if the market undergoes a significant move.

Cash Settlement

It’s advantageous to all parties when options are settled in cash:

  • No shares exchange hands.
  • You don’t have to worry about rebuilding a complex stock portfolio because you don’t lose active positions if assigned an exercise notice on calls you wrote, as in covered call writing or a collar strategy.
  • The option owner receives the cash value and the option seller pays the cash value of the option. That cash value is equal to the option’s intrinsic value. If the option is out of the money, it expires worthless and has zero cash value.

These cash-settled options are almost always European-style and assignment only occurs at expiration, thus the option’s cash value is determined by the settlement price.

Settlement Price

The settlement price is often a surprise with European-style options because, when the market opens for trading on the morning of the third Friday, a significant price change may occur from the previous night’s close. This doesn’t happen all the time but it happens often enough to turn the apparently low-risk strategy of holding the position overnight into a gamble.

Here’s the scenario faced by European option traders Thursday afternoon on the day before expiration:

  • If the option is almost worthless, holding on and hoping for a miracle is not a bad idea. Owners of low-priced options, worth a few nickels or less, have earned hundreds or thousands of dollars when the market shifted higher or lower on Friday morning. However, these options expire worthless most of the time.
  • If you own an option that has a significant value, you have a decision to make. The settlement price could make the option worthless or double its value. Do you want to roll the dice? It’s a risk-based decision that individual investors need to make for themselves.

When short the option, you face a different challenge:

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    The Best Binary Options Broker 2020!
    Good for Beginners!
    Free Education + Free Demo Account!
    Get Your Sign-Up Bonus Now!

  • Binomo
    Binomo

    Only For Experienced Traders!

Like this post? Please share to your friends:
Binary Options Trading
Leave a Reply

;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: