Exchange of Options for Options (EOO)

Definition

The term Exchange of Options for Options refers to a privately negotiated trade involving the exchange of a futures position for a corresponding OTC option. Exchange of Options for Options is one of several Exchange for Related Positions (EFRP) transactions.

Explanation

An Exchange of Options for Options (EOO) is one of several Exchange for Related Positions (EFRP) trades authorized under Rule 538. An EOO involves the exchange of a futures position for an Over the Counter (OTC) option involving the same underlying commodity. In order to conduct this transaction:

  • The buyer (seller) of the OTC option must also be the buyer (seller) of the futures contract.
  • The quantity of the OTC option must be approximately equal to the futures contract.
  • The OTC option should involve the same underlying asset specified in the futures contract as well as the same contract month.

As is the case with other types of EFRPs, the transaction occurs as a privately negotiated exchange in positions. The other authorized EFRP trades include Exchange for Physical (EFP), Exchange for Risk (EFR) and Exchange for Swap (EFS).

Related Terms

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