The AMEX FRO (Fixed Return Options) Thread

Quote from CPTrader:

Atticus, why do you doubt it will take off - they seem well designed and seem to address the issues that would make traders wary of them. Additionally, their simplicity should lead to broad usage by pros and non-pros.

So why do you think the product will fail?? Just curious....
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OTC equity exotics [street-volatility] are a very small market. Index exotics are 30x larger in notional-trade, but still microscopic when compared to the volumes traded in FX. I would like to see a FLEX-market develop, but volume begets volume, and there is no primary offset. Nobody on the OTC side is looked for listed-product to replicate an OTC trade. They cannot be arbed against any listed product which will limit initial retail interest. I'd like to see the PHLX roll-out FX exotics. That contract would trade.

VIX futures saw no action until VIX options were rolled-out.
 
Quote from atticus:



VIX futures saw no action until VIX options were rolled-out.
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I read a paper when vix options first came out stating that they were purposely tied to the futures as a mean to stimulate volume in both products. Great call by the CBOE in retrospect.
 
Quote from atticus:

OTC equity exotics [street-volatility] are a very small market. Index exotics are 30x larger in notional-trade, but still microscopic when compared to the volumes traded in FX. I would like to see a FLEX-market develop, but volume begets volume, and there is no primary offset. Nobody on the OTC side is looked for listed-product to replicate an OTC trade. They cannot be arbed against any listed product which will limit initial retail interest. I'd like to see the PHLX roll-out FX exotics. That contract would trade.

VIX futures saw no action until VIX options were rolled-out.
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Good point, atticus. Thank you.
 
Quote from rickf:

I saw Steve Smith (TSCM) write about Fixed Return Options this morning. Tonight I checked out the AMEX website to learn more about them since I got a note saying that my options broker is offering them now.

Info on FROs:
http://www.amex.com/?href=/options/prodInf/OptPiFROs.MoreInfo.jsp

Given their binary all-or-nothing structure and coupled with a maximum $100 gain/loss per contract, I can't decide if these are "options for beginners" or "options for simple folks" or something that will take off as a serious investment/trading vehicle. At least for me, I like the fact that FROs do away with all the greeks, which is why I moved to futures late last year because it was much less stuff to worry about -- with FROs you decide the strike price you want your underlying to close above/below, place your order, and wait to see what happens. (Hopefully you did your homework correctly and are profitable, obviously!)

While your profits and losses seem to be capped at $100, which I guess can help folks manage their risks better - though I can't help wonder if FROs will be used mostly by retail investors as pure speculation and a form of options-oriented gambling for $100 risk per throw.

Thoughts? Reactions? Concerns?
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This explains them:

http://www.tradeking.com/AdTrack/TYO0508FR0FR010/FRO
 
So far it looks like you need to hit the bid to get filled, is anyone actively trading these, not all brokers are offering these. Besides Tradeking, Options Express any others.

At some point the CBOE is supposed to roll out some binary options.
 
Yes, they are like gambling, but so are a lot of optoins strategies.

i kind of look at like buying a call or a put, but with limited upside potential.
 
Quote from IV_Trader:

You are right , its still parimutual with regular withhold of 17-20%
I will make it simple: under what conditions ( only one scenario) house still can lose ?
It is not a trick question; happens few times a month
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Speaking of…Big Brown = Black Swan, lol , dead last.
Did Victor N bet 1mil on show to win an “easy” 50k and blowout again ?


:p
 
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