The AMEX’s FLEX Index Options give you the ability to create customized index options that fit your own investment needs and goals — learn how.

Introduction

Customizing Contract Terms

The Institutional Index (XII)
The Major Market Index (XMI)
The Standard & Poor’s MidCap 400 Index (MID)
Expiration Dates
Strike Prices
Exercise Style
Settlement Values

Trading Index FLEX Options

Creating FLEX Series
Trading FLEX Series

Visit the AMEX

INTRODUCING THE FLEXIBLES
...the American Stock Exchange's FLEX Options — FLEXible Exchange Index Options.

FLEX options bring you the latest in risk management techniques. With FLEX, you have the ability to create customized index options — options that you design to fit your own investment needs and goals.

Even more important, FLEX index options provide you with a centralized auction marketplace with competitive pricing, an opportunity for secondary trading and a centralized clearing agency that virtually eliminates contra-party credit risk. They are as convenient as all exchange-traded options, featuring:

• the price discovery of an auction market;
• the financial guarantee of The Options Clearing Corporation, the world's largest issuer and clearing organization for financial derivatives and the only clearinghouse worldwide to receive a "AAA" credit rating from Standard & Poor's Corporation.

A primary benefit of FLEX index options is the ability to customize key contract terms — from exercise price to exercise style; from expiration date to the method of determining exercise settlement value. And FLEX index options provide the opportunity to trade in size. Indeed, a minimum underlying (notional) value of $10 million is required to create a new FLEX index series.

Now, institutional and corporate options users who seek large-size, customized option contracts can find just what they need with the AMEX's FLEXible Exchange Index Options.

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CUSTOMIZING FLEX INDEX OPTIONS — THE MANY POSSIBILITIES
The choices are many for FLEX users. While they can custom tailor many contract terms, they also may select from an array of broad-market indexes to underlie AMEX FLEX options. They include:

The Institutional Index (XII)
This capitalization-weighted index measures the performance of the 75 major stocks currently held in highest dollar amounts in institutional portfolios that have a market value of more than $100 million. The composition of the Index is adjusted on a quarterly basis, as necessary, to maintain conformity with current institutional investments.

The Major Market Index (XMI)
The Major Market Index is a carefully constructed index specifically designed to measure the performance of the U.S. blue-chip market. A price-weighted index, it is composed of the stocks of 20 leading companies, 17 of which are also in the Dow Jones Industrial Average.

Standard & Poor's MidCap 400 Index (MID)
The S&P MidCap Index measures the performance of the mid-range sector of the U.S. stock market. The Index is based on 400 stocks chosen on the basis of market size, liquidity and industry group representation. The MidCap is a capitalization-weighted index.

Additional indexes may be available for FLEX options trading in the future.

Type of Option — Put or Call.

Expiration Date — Can expire up to five years from trade date. Expirations can fall on any business day except "expiration Friday" or the two business days immediately preceding or following that day. For example, if the third Friday in September in any year were to fall on 9/17, FLEX index options could not expire on 9/15, 9/16, 9/17, 9/20 or 9/21.

Exercise (Strike) Price — Choose a strike price based on an index level, a percentage or numerical deviation from a closing or intraday index level, or any other reasonable method for deriving an index level. The level selected will be rounded to the nearest tenth of an index point (e.g., 350.3).

Exercise Style — Can be American, European or Capped (European).

Settlement Values — FLEX users may choose from:

• Opening settlement value based on opening prices in the primary market for each index component stock on the specific expiration date of the FLEX index option. (If a stock in the index does not open for trading, the last reported sale price for such stock will be used in calculating the settlement value.)
• Closing settlement value based on the closing level of the index on the expiration date.
• Average of the index's opening and closing settlement values on the expiration date.
• Average of the high and low values of the index on the expiration date.
• Average of the index's opening-settlement value, closing-settlement value and high and low values on the expiration date.

Note: American-style FLEX index options exercised prior to an expiration date are only settled based on the closing level of the underlying index on the exercise date.

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FLEX OPTIONS — HOW THEY TRADE
FLEX index options, like all AMEX-listed options, trade in the Exchange's Mezzanine Index Trading Area. Here, all orders are exposed to the competitive features of the auction market to enhance price discovery in a fair and orderly manner.

There are, of course, some differences in the trading of FLEX index options from other exchange-traded options because of their customized features. For example, FLEX quotes are generated only in response to a Request For Quote (RFQ). A modified version of the AMEX's Specialist/Registered Options Trader system, along with special procedures for the RFQ market, have been developed to ensure competitive pricing.

Creating a FLEX Series
The FLEX trading process begins with the submission of an RFQ by a participating Exchange member ("Submitting Member"). The RFQ signifies the Submitting Member's interest in creating a new FLEX option series and must include the specific terms for the new series. A minimum size of $10 million underlying (notional) value is required to open a new FLEX index series.

In addition, each RFQ must include a "Request Response Time" (RRT) specified by the Submitting Member (currently from 5 to 30 minutes) by the end of which responsive quotes are given to the specialist. Bids and offers may be submitted by qualified members, including specialists, Registered Options Traders and floor brokers acting on behalf of customers. Quotes may be modified at any time during the RRT.

At the end of the RRT, the best bid and offer (BBO) is reported to the Submitting Member who may accept all or part of the BBO, reject the entire BBO or attempt to negotiate a better price. The Submitting Member may also request a "BBO Improvement Interval," a period of time during which FLEX qualified members may submit new FLEX index quotes to meet or improve the original BBO.

Details of RFQs and quotes, as well as information on completed trades, including execution price and size, are transmitted as Administrative Text Messages (ATMs) through the Options Price Reporting Authority (OPRA) system to vendors.

Trading an Existing FLEX Series
Trading in an existing FLEX index option series takes place using the same Request For Quote market that was developed for initial transactions. Upon submission of an RFQ for an outstanding FLEX series, trading is conducted following the same procedures as those used in creating a new FLEX series.

Existing series can be traded in opening or closing transactions in minimum increments of $1 million of underlying value. An increment of less than $1 million is permitted in a closing transaction when the remaining value of an account in the series is less than $1 million, provided the trade is for that account's entire remaining series value.

In trading existing FLEX index series, RFQs can only specify the exercise price in the numerical format existing for that series, not a percentage format. Size may be specified in dollars or number of contracts, provided that size minimums are met and that closing transaction restrictions as delineated above are observed.

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FLEX OPTIONS — CUSTOMER MARGIN
With one exception, FLEX index options are subject to the same customer margin rules governing standardized broad-market index options. Initial and maintenance margin for uncovered writers is 100% of the current premium plus 15% of the current notional contract value, reduced by any out-of-the-money amount to a minimum of the current premium plus 10% of the current notional contract value.

In addition, margin is available for spread, straddle and combination positions pairing FLEX/FLEX and FLEX/traditional options. EXCEPTION: Where these positions do not have the same exercise settlement value terms, margin will be available only until the opening of trading two business days prior to the expiration date. After that time, positions involving options with differing exercise settlement values will require separate margining.

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AN INVITATION
...for a personal visit to the American Stock Exchange.

The AMEX is pleased to invite interested investors to the Exchange for a discussion on FLEX options and a first-hand opportunity to see where and how FLEX options trade. To schedule a visit, or to obtain further information about FLEX index options, please contact the Derivative Securities Marketing Division via the AMEX Hotline at 800-THE-AMEX.

This site discusses exchange-traded flexibly-structured options (FLEX Index Options) issued by The Options Clearing Corporation and traded on the American Stock Exchange, and it summarizes various rules of the OCC and AMEX regarding those options. For complete information, reference should be made to the full text of the OCC and AMEX rules. This site has been prepared for educational purposes only. It is not a prospectus, and no statement in this site is to be construed as a recommendation to purchase or sell a security, or to provide investment advice. FLEX Index Options involve risk and are not suitable for all investors. Prior to buying or selling FLEX Index Options, a person must receive a copy of "Characteristics and Risks of Standardized Options" and a "FLEX Options" supplement and should thoroughly understand the risks involved in any use of options. Copies may be obtained from your broker, The Options Clearing Corporation, 440 S. LaSalle Street, Chicago, IL 60605, or the American Stock Exchange, 86 Trinity Place, New York, NY 10006-1881.

"Standard & Poor's^®" and "Standard & Poor's MidCap 400 Index" are trademarks of The McGraw-Hill, Companies, Inc. and have been licensed for use by the American Stock Exchange, Inc.