FLEX Appeal: Enhanced FLEX Functionality on Cboe Platforms and Data

What to Know About FLEX Options

The increasing use of FLEX^® (FLexible EXchange^®) options is one of the hottest growth segments for the options industry in recent years. FLEX options are calls and puts with customized contract specifications currently traded on five U.S. exchanges and cleared by the OCC. Over the past decade, FLEX options volume has grown by 26% annually, from 60,000 contracts per day in 2014 to nearly 800,000 contracts per day in 2024, while total listed options volume has grown from 17.6 million contracts to nearly 47 million, representing a 7.7% compound annual growth rate (CAGR). In terms of market share, FLEX options currently make up nearly 1.7% of the total listed options volume, with peak days topping 2 million contracts, or 4% of the market. 

Average Daily FLEX Options Volume by Type

Source: Cboe

Average Daily FLEX Options Notional Value by Type

Source: Cboe

Average Daily FLEX Options Volume by Venue

Source: Cboe

FLEX options were introduced in1993 as an alternative to bespoke over-the-counter (OTC) contracts periodically traded between large institutional clients and broker-dealers. In contrast to listed options — where a fixed number of expiration cycles and strikes are continuously quoted with American style contracts on single stocks and Exchange Traded Funds (ETFs) and ‘European style’ index options —, FLEX options allow individual participants to specify virtually any strike or expiration date up to 15 years in the future, with the choice of American or European-style exercise for any product. Subject to exchange functionality and rules, complex orders and trades tied to underlying hedges are allowed. Recent innovations enabled strike and/or price based on the closing spot level on the trade date, along with cash settlement for some ETFs, and even exotic Asian and Cliquet settlement for select index products. While the trading process for FLEX options may include a pre-trade ‘request for quote’ (RFQ) notification and response, there is no continuous quoting of FLEX options and most trades are negotiated and executed as a cross between buyer and seller. 

Initially, FLEX options were lightly traded ‘by appointment’ in open outcry on participating exchange floors. There were several use cases, including access to additional strikes and expirations in thinly traded securities, hedge replication by structured products desks, and the use of European style calls , which allowed buy-writers to avoid dividend-related early exercise. In recent years, FLEX options volume has surged as traders find the customization well-suited to a growing segment of defined-outcome ETFs that require an embedded buffer (downside put hedge) and cap (upside call sale) at a specific term and percent of the underlying price on the opening date. Additionally, higher interest rates have led stock-loan desks and prime brokers to use European-style FLEX ‘reverse/conversion’ spreads more often to lock in borrow rates — similar to swaps or forwards — without any risk of early exercise due to dividend or carry-cost purposes. 

Functionality and Data

Since inception, the Options Price Reporting Authority (OPRA) has broadcast FLEX options activity from participating exchanges, sharing basic contract terms and price information across its feed. OPRA also publishes closing valuations and open interest levels daily. Unlike listed options, where a broad range of tools and analytics has evolved to help traders monitor activity, valuations and risk, transparency into FLEX activity has been more difficult to achieve, presenting challenges to participants who seek complete information for client coverage, trading and structured product creation.

In response to the growth of FLEX activity, Cboe’s Data and Access Solutions team has made enhancements to its data and platforms, supporting a comprehensive and informed view of outright and complex FLEX trades, positions and valuations at any point in the trade lifecycle.

Cboe Trade Alert

Cboe Trade Alert now offers FLEX option alerts of any desired size from all exchanges. The alerts are delivered in the same manner as listed trades, based on custom triggers and templates. For added clarity, FLEX alerts include settlement specifications, Cboe theoretical values and Greeks, indication of pre-existing open interest and the prevailing spot price.

Trade Alert FLEX aggregations include most-active contracts, open interest, and daily OCC valuation marks for any desired date.

Additional contract-level functionality includes an on-demand snapshot valuation for any open FLEX contracts, as well as a customer/firm/market-maker account type summary data for executions taking place on a Cboe exchange.

Cboe Datashop

Cboe DataShop now includes market-wide FLEX trade activity files, available for purchase and SFTP download. Historical date ranges and daily subscriptions are available, in addition to a FLEX position report that includes open interest, contracts specifications, and model fitted theoretical values and Greeks for all open FLEX positions (approximately 50,000 rows per day).

LiveVol Pro

LiveVol^® Pro provides FLEX  activity and trade details in real-time via a modular FLEX message window.

FT Options

The FT Options trading and risk management suite supports FLEX options in all aspects of scenario analysis and risk management, with positions updated via start-of-day files and real-time FIX messages. FT Options also includes a calculator module and API function that facilitates pre-trade valuation and analysis based on interpolated volatility surface and rate information.

Cboe Hanweck

As the powerhouse behind all of Cboe Data and Access Solutions, Cboe Hanweck provides a mission-critical API, streaming real-time FLEX options data for platform, risk, informational or other internal and external use cases. Services include low-latency dissemination of FLEX trades with model-fitted theoretical values and Greeks, real-time valuations of all open FLEX positions, end-of-day snapshots with analytics, and a real-time FLEX-pricer API endpoint to support pricing and risk management across a wide range of business lines. 

Data shows that a growing number of traders and market participants recognize the unique characteristics of FLEX options as a valuable tool to achieve various investment objectives. These include simple hedges and directional trades, call writing without the risk of early exercise, stock-loan rate operations, precise structured product and defined-outcome ETF hedges, and more. The integration of value-added FLEX data into Cboe platforms and data offerings enables market professionals to enhance their awareness and understanding of this expanding segment, leading to superior account coverage and more informed decision-making.

Find sample data and learn more about Cboe's FLEX services here.

^{There are important risks associated with transacting in any of the Cboe Company products discussed here. Before engaging in any transactions in those products, it is important for market participants to carefully review the disclosures and disclaimers contained at: https://www.cboe.com/us_disclaimers/. These products are complex and are suitable only for sophisticated market participants. These products involve the risk of loss, which can be substantial and, depending on the type of product, can exceed the amount of money deposited in establishing the position. Market participants should put at risk only funds that they can afford to lose without affecting their lifestyle.}

^{© 2024 Cboe Exchange, Inc. All Rights Reserved.}