FLEX Options and Market Outcomes

When the standard chain
is not enough.

FLEX options let institutions customize contract terms while keeping exchange trading and central clearing. We study the public traces those bespoke contracts leave in listed options and equities.

Shivesh Prakash* Frank Ferstler Nicholas Pezolano

*Haas School of Business, UC Berkeley · Newmark Risk

Read the paper arXiv Technical report See a FLEX consolidation
Standard chain
Monthly expiryAvailable strikes
FLEX request
Custom callcleared
Strike
$103.50
Expiry
93 days
Exercise
European
Settlement
Physical
Exchange-traded · centrally cleared

Research question Does customized institutional option activity spill into regular listed-option positioning, volatility, or stock returns?

The instrument

Bespoke terms.
Public infrastructure.

Standard options trade at exchange-defined strikes and expirations. FLEX options preserve exchange trading and central clearing while letting counterparties choose nonstandard strikes, dates, exercise styles, and settlement terms.

That makes FLEX a useful revealed-preference signal. A customized contract says that some participant wanted exposure the standard chain did not naturally provide, even when their precise motive remains unobserved.

TermStandard optionFLEX option
Strike

Exchange grid

Custom

Expiration

Listed cycle

Custom date

Exercise

Contract-defined

Customizable

Clearing

Central

Central

Interactive explainer

From FLEX to listed.

A FLEX position is not split across nearby strikes or expirations. It can be consolidated only when an ordinary listed series appears with the same contract terms.

Illustrative equity-call chain The custom series sits outside the listed grid.
Expiry ↓ · Strike → $100.00$103.50$105.00 90 days Listed—Listed 93 days — FLEX Listed look-alike Listed · OI transferred — 97 days Listed—Listed
Nearby series 90 days · $105.00 Not eligible: terms differ

The key distinction: consolidation transfers the existing open interest into one identical non-FLEX series. It is not replication, interpolation, or a basket of nearby contracts. If an exact look-alike is never listed, the position remains FLEX. See the Options Industry Council explainer and Cboe conversion notice.

Empirical design

Follow the footprint.

We link customized FLEX events to regular option markets and equities, then compare each event with a non-FLEX control selected on comparable pre-event conditions.

  1. 01

    Observe customization

    Identify an underlying and effective date from a reportable FLEX consolidation.

  2. 02

    Build a control

    Match on price, spread, implied volatility, option volume, and open interest.

  3. 03

    Trace the market

    Measure listed-option liquidity, positioning, volatility, and adjusted equity returns around the event.

  4. 04

    Stress the signal

    Apply transaction-cost and latency assumptions to volatility-carry strategy prototypes.

250trading days
41single-name underlyings
53FLEX event dates
910listed-option underlyings

Main findings

Positioning, not direction.

FLEX activity is most useful as a marker of institutional volatility demand and outstanding option positions, not as a durable stock-return signal.

0.306

Listed open interest rises

Matched-control difference-in-differences finds a robust post-event increase in log listed-option open interest.

p = 0.0042 · BH-adjusted p = 0.0168
+12.35pp

FLEX selects high-IV names

The date-fixed-effect ATM IV premium is concentrated in mid-price underlyings and survives outlier checks.

β = 0.1235 · p = 0.0030
−0.85pp

Equity effects fade

A same-day adjusted return difference appears, but it does not persist over one-to-five-day horizons.

CAR₀ p = 0.0442 · later horizons not significant

Evidence map

Three markets, three different stories.

Listed open interest is the clearest post-event footprint, consistent with regular options being used to hedge, warehouse, or complement customized exposure.

Robust post-event effect β = 0.3061 Listed-option open interest
Execution-stressed short-straddle profit and loss increases across quartiles of the event-day implied-minus-realized volatility spread.
Volatility carry The event-day IV-minus-realized-volatility spread predicts execution-stressed short-straddle returns. This relationship is informative, but the strategy tests remain research prototypes rather than deployment-ready systems.

Full research record

Read as deeply
as you need.

The paper presents the empirical design, robustness tests, execution assumptions, and limitations. The technical report preserves the full notebook-style analysis and diagnostics without releasing the underlying research code or data.

Paper · PDF Technical report · HTML
Working paper · 2026 FOMO FLEX Options and
Market Outcomes UC Berkeley · Newmark Risk

Interpretation

What the evidence does not claim.

Selection is part of the signal. Elevated IV appears before some events, so FLEX exposure is not interpreted as a clean causal shock to volatility.

Directionality is weak. The data do not support presenting FLEX activity as a persistent equity-return predictor.

Execution matters. Bid-ask spreads, fees, latency, sample size, and aggregate rather than leg-level data constrain trading claims.

Citation

Cite the paper.

@article{prakash2026fomo,
  title  = {FOMO: FLEX Options and Market Outcomes},
  author = {Prakash, Shivesh and Ferstler, Frank and Pezolano, Nicholas},
  year   = {2026},
  note   = {Working paper}
}