FLEX Delta Adjusted at Close
PUBLISHED BY: FINANCEFEED
27May2020
DAC orders are limit orders for FLEX options that execute intraday and receive a delta-adjusted price based on that day’s official closing price of the underlying security or index value.
Cboe Options Exchange (C1) is set to introduce a new order type, FLEX Delta-Adjusted at Close (DAC), which will be accepted during the Regular Trading Hours (RTH) session. The launch is scheduled for July 20, 2020, subject to regulatory review.
DAC orders are limit orders for FLEX options that execute intraday and receive a delta-adjusted price based on that day’s official closing price of the underlying security or index value. Both simple and complex FLEX DAC orders will be supported. The maximum number of legs on a FLEX DAC order is 99. This differs from the number of legs supported on FLEX and non-FLEX orders without the DAC instruction, which is 100.
FLEX DAC orders will be supported for ETF/ETN/ETP and index products only.
On the effective date, users will be able to designate a FLEX DAC order by sending the PriceType (FIX Tag 423) = “D” instruction. The designated delta value will be defined in the new Delta (FIX Tag 22023) field. Valid values for FIX Tag 22023 will be from 0 to 1.0000 for call options, or -1.0000 to 0 for put options.
Applying the delta to the trading price could, in limited cases, result in a zero or negative trading price. In such cases, the initial execution price will be adjusted to a minimum value of $0.01
For complex FLEX DAC orders, the new LegDelta (FIX Tag 22024) is specified within the NoLegs repeating group to indicate the specific delta value to apply to each leg.
DAC orders entered electronically via FIX protocol can optionally include a reference price for the underlying security or index. The reference price should be sent in the new ReferencePrice (FIX Tag 22025) field. The System will conduct reasonability checks on the user entered reference price value. If a user chooses not to specify a reference price, the System will apply the current value of the underlying available at the time of order entry as the reference price.
FLEX DAC orders will only be executed via AIM, SAM, and single-sided auctions. FLEX DAC orders will not support FLEX percentage trades, Asian settlement, or Cliquet settlement options.
To support the new DAC FLEX order type, the DAC Auction Notification and DAC Trade messages are being added to the FLEX Feed. DAC single-sided, AIM and SAM auction messages will include the reference price and delta per leg.
The new FLEX DAC order functionality is currently available in the C1 certification environment.
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