EFTA01393123

CHAPTER VII FLEXIBLY STRUCTURED OPTIONS Flexibly structured options, like the other options discussed in this booklet, are traded on the U.S. op- tions markets and are issued by OCC. However, unlike other options, the terms of flexibly structured options are not all standardized. When a flexibly structured option is purchased and sold in an opening transac- tion, the parties to the transaction have the flexibility, within limitations set forth in the rules of the options market on which the transaction occurs, to fix certain of the option's terms. The terms of a flexibly structured option which may be fixed by the parties are called variable terms. The flexibility to fix these variable terms is what makes flexibly structured options different from other options. The principal risks of holders and writers of flexibly structured options are discussed in Chapter X. Read- ers who are interested in buying or writing flexibly structured options should read not only this chapter but also all of Chapter X. Because many of the terms of flexibly structured options are not standardized, it is less likely that there will be an active secondary market in which holders and writers of such options will be able to close out their positions by offsetting sales and purchases. See paragraph 1 under "Special Risks of Flexibly Struc- tured Options" in Chapter X. The trading procedures established by the options markets for transactions in flexibly structured options differ from the procedures for transactions in other op- tions. Readers desiring information about the trading procedures of an options market for flexibly structured options may obtain that information from that market. The options markets may fix minimum size or mini- mum monetary values for transactions in flexibly struc- tured options. Flexibly structured options may be useful to sophisticated investors seeking to manage particular portfolio and trading risks. However, as a result of these minimums, as well as the special trading procedures and reduced likelihood of there being a 45 CONFIDENTIAL - PURSUANT TODEIEBDRI10B;056530 P. 6(e) CONFIDENTIAL SDNY_GM_00244714 EFTA01393123