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.