Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

XPO

What it is:

An XPO is a perpetual option.

How it works (Example):

An option gives the holder the right, but not the obligation, to purchase (or sell) 100 units of a particular underlying security at a specified strike price on or before the option's expiration date. XPOs, however, do not have expiration dates.

XPOs generally only exist in the United States.
 

Why it Matters:

XPOs give investors considerable flexibility, because they are not constrained by deadlines for exercising. Accordingly, they have the luxury of being able to wait a long time for the underlying security to hit a favorable price. One interesting aspect of this is that the Black-Scholes option pricing model is often less useful in calculating the value of XPOs (due to the lack of expiration date), and thus trading XPOs is often a matter of instinct.

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