Product Specifications: Fixed Return Options (FROs)
Exchange
American Stock Exchange (AMEX)
Description
Based on an underlying stock or Exchange Traded Fund (ETF), a FRO, or binary option, is a “cash or nothing” option. Both “finish high” (calls) and “finish low” (puts) FRO’s will be presented at each available strike price. If in the money at expiration, one option is worth $100 to the option holder. If out of the money at expiration, the option expires worthless. Exercise and assignment activity results in the exchange of $100. No exchange of actual shares or units of the underlying occur.
Expiration Settlement Values
FROs will settle based on the AMEX FRO Settlement Index(SM) for all trades in the underlying security executed during the last trading days regular trading session. The full day AMEX FRO Settlement Index(SM) will be calculated continuously throughout the last trading day prior to expiration (normally a Friday) based on the Volume Weighted Average Price (VWAP). The running AMEX FRO Settlement Index(SM) will be disseminated at least every 15 seconds using the unique symbols, similar to wrap symbols on other options, will be used to distinguish the FROs from regular options on the same underlying security.
Exercise Settlement Values
Calculated using the VWAP at the close of trading on the last business day prior to expiration (normally a Friday). A FRO that finishes in-the-money will be subject to automatic exercise. The automatic exercise will result in the holder of the in-the-money FRO receiving $100.00 per contract and the writer of the in-the-money FRO being debited $100.00 per contract not including any commissions.
Strike Price Intervals
Generally, strikes will include the same strikes as those available for trading as the standard listed options on the same underlying security.
Premium Quotations
FROs will be quoted and traded with the same minimum price variations as the standard listed options for the same underlying security. For example, a premium bid of $0.10 would mean an investor selling would receive $10.00 per contract sold.
Exercise Style
European. FRO’s may be exercised only on the business day prior to the expiration date, typically a Friday. Option writers are therefore, not subject to early assignment. In the money options will be exercised automatically in lieu of other instructions and will result in a transfer of $100 from the seller to the buyer.
Expiration Months
Same as the standard options on the underlying security.
Expiration Dates
The Saturday immediately following the third Friday of the expiration month. Same as the standard options on the same underlying security.
Position Limits
25,000 contracts, existing hedge exemptions will not apply, facilitation exemptions will apply and position will not be aggregated with standard listed option positions. Position limit information can also be found at the OCC's position limit data.
Minimum Customer Margin
For both for calls and puts, long positions must be paid in full. Short positions will require the seller to post the difference between the premium received and $100 per contract sold short. The premium must remain in the account.
Trading Hours
9:30 a.m.- 4:00 p.m. or 4:15 p.m. ET
FRO’s will have the same trading hours as the standard listed options on the same underlying security.
Additional Information
FROs exercise and assignment is based on an all day expiration day AMEX FRO Settlement Index(SM). It is possible for the standard listed options to be in-the-money at expiration and the FROs to be out-of-the-money or for the FROs to be in-the-money and the standard listed options to be out-of-the-money. An investor must understand FROs settlement before entering into any FROs transaction.
Prospective investors are encouraged to review the complete FRO product specifications information on the AMEX website.
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