Everything you need to get started with Fixed Return Options!

10. Investopedia and Wikipedia entries on VWAPs.

9. Investopedia's entries on Binary Options and Digital Options; Wikipedia's entry on Fixed Return Options.

8. TradeKing's easy to understand list of Fixed Return Option FAQs.

7. TradeKing's FRO help pages.

6. Lawrence McMillan's post in the All-Star Trades blog FROs: Red or Black.

5. OptionsGuy's blog Introducing FROs.

4. BigDog's blog Drum roll...FROs.

3. American Stock Exchange's educational material on Fixed Return Options.

2. American Stock Exchange's FRO list of symbols ready for trading.

1. TradeKing's white paper on FROs by Brian Overby.

 --Nicole Wachs

TradeKing Staff

Options involve risk and are not suitable for all investors.

Please read Characteristics and Risks of Standardized Options.

Lawrence G. McMillan has a professional business relationship with TradeKing.

Hi Nicole - Just out of curiosity,  how was the list of 20 companies that FROs are currently based on determined?   Will there be more added any time soon?

Anyone know what prints qualify for the VWAP calculation? Is it only the primary exchange, or the consolidated tape? I know it's only normal market hours trading, but are third-market crosses counted, for instance? These are often large blocks which are exempt from rules like NMS and may be priced outside normal trading range. They could easily shift VWAP by several cents.

There isn't one definitive VWAP that everyone agrees on. 

Hi UPod,

The first twenty issues are: AAPL, C, CSCO, DIA, EEM, GE, GOOG, GS, HD, IBM, INTC, IWM, JPM, MSFT, OIH, QQQQ, SPY, WB, XLE, and XLF. I am not exactly sure how the first batch was selected, but popularity of the underlying plays a role in this process.

An article by Jeff Kearns for Bloomberg, explains how the larger list of 70+ symbols was created. "The American Stock Exchange, which NYSE Euronext has agreed to buy, may expand the binary listings to as many as 70 stocks and ETFs. That's how many are eligible for inclusion based on the exchange's criteria that the underlying shares have at least $40 billion in market value and average daily stock trading of at least $250 million."

I cannot say for sure, but I would guess these criteria were formulated to ward off attempts at manipulating the VWAP (Amex FRO Settlement Index).

--Nicole Wachs

TradeKing Staff

Options involve risk and are not suitable for all investors.

Please read Characteristics and Risks of Standardized Options.

Hi Snowman,

No offense taken with your comments. I disagree with what you are saying, but for the purposes of this discussion, let's take your statement as accurate. "Do the odds and you will see it is a silly bet." This sounds like you are looking at the opportunity from only one side.

I know in the past you have tended to be a buyer of options; I suspect that is still the case. However you came to your conclusion, if you feel the odds are against you, they can't be against both the buyer and the seller at the same time. Someone has to be benefiting from the situation. So, if you have determined that FROs are not worth buying, one could deduce that probabilities must favor the seller, and therefore FROs are more likely to turn a profit when sold.

Now, I will admit that I also disagree with this blanketed statement, but I am using it to make the point that you need to look at the entire picture, not just from the viewpoint of an option buyer.

It will be interesting to see how this develops. I would like to hear about any FRO trades you may decide to place.

--Nicole Wachs

TradeKing Staff

Options involve risk and are not suitable for all investors.

Please read Characteristics and Risks of Standardized Options.

Hi 92LV,

Thanks for your question. Please see the FAQ What is a VWAP, and how is it calculated? For the purposes of FROs, the trades that are included in the VWAP calculation are from the Consolidated tape, between the hours of 9:30 and 4:00 (or 4:15 for some ETFs). This method will be consistently applied. There may be other ways to calculate a VWAP, but the only technique that matters for this instrument (FROs) is the one cited in the FAQs. If you want to dig deeper, I suggest you go straight to the horse's mouth, 1-800-THE-AMEX.

--Nicole Wachs

TradeKing Staff

Options involve risk and are not suitable for all investors.

Please read Characteristics and Risks of Standardized Options.