Flexible Options

Flexible Options

  • The product

    Flexible options are traded in organized OTC environments – based on rules and non-standard features – and may be defined at the parties’ discretion.

    Since these options are not standard contracts, they allow for flexible parameters to be negotiated between the parties. These options may also have specific features, such as price limits and knock-in/knock-out barriers.

    B3 provides the registration of flexible options with and without CCP.

  • Specifications
    Contract sizeFreely established between the parties and registered on the asset unit related to the respective option.
    Fixing dateFreely established between the parties.
    Expiration and settlement dayFreely established between the parties.
    Settlement procedureWith CCP: settlement is cleared through the Clearinghouse. Without CCP: settlement is done directly by the parties.
    Product featuresBarriers, Limits, and Rebate
    Margin requirementWith CCP: only the seller (writer) is required to deposit the collateral margin, since it is the only one with default risk. Without CCP: no collateral margin deposit is required.
    Warranty provisionThe buyer (holder) pays for the right to purchase ‘call’ options or sell ‘put’ options. In turn, the seller (writer) is required to sell ‘call’ options or buy ‘put’ options, if the holder exercises such rights.
    Expiration periodFreely established between the parties.
    Settlement priceFreely established between the parties.
    Exercise priceFreely established between the parties.
    Trade premiumPremium paid by the holder to the writer as payment for acquired rights. The parties may establish the premium payment date in any business day between the first business day following the operation date and the business day following the expiration date. If the parties do not establish such date, the premium payment date shall be automatically established as the business day following the operation date.
  • Benefits
    • Possibility of limiting the potential for loss. Limits and barriers allow the parties to determine the maximum loss incurred by the writer in the operation;
    • Price protection against unwanted asset fluctuations to which the client is exposed, since future purchase or sale listings are guaranteed, depending on the type of operation; and
    • Mitigation of credit risks for operations with CCP, since B3 guarantees such operations. 

     

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