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From the lens Fixed Return Options - The ABCs of FROs.

Have you used Fixed Return Options in your investing strategy? Have any essential tips to add about FRO trading? Let us know!

  • BH Jun 16, 2008 @ 2:53 pm | delete
    HOW FRO PREMIUMS COMPARE WITH CALL AND PUT PREMIUMS
    Unlike calls and puts, FROs will always trade for less than $1, or less than $100 per contract. FROs use a per-contract premium multiplier of 100. Because they settle in cash instead of in stock, a multiplier is used to determine the premium instead of the number of shares the contract represents.

    This means if an FRO is trading for $0.45, your cost will be $45 ($0.45 x 100) per contract. However, unlike calls and puts, this multiplier is not based on the number of shares, because FROs are cash-settled and no stock will change hands at expiration. FROs tend to be less expensive than calls and puts with the same Strike Price, because the potential per-contract return for FROs is always exactly $100, irrespective of how far in-the-money they are at expiration.

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    Fixed Return Options
  • BFuniv.com Jun 4, 2008 @ 1:40 pm | delete
    Sounds like playing roulette, with the strike price being the 0 and Double 00. Since most options expire worthless, it is usually the trades in and out prior to expiration where money is made. Thanks for the information, I'll take a deeper look.

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