what covers a commanders discretion when it comes to flag a person or not? can't find in 600-20 or 600-8-2, is it other reg or am i missing?

AR 600-8-2 governs flags. There isn't much room for discretion. There are circumstances that require the initiation of a flag (Para 2-2 and 2-3). "Require" doesn't leave room for much discretion.

Flag management is a serious topic. There is no discretion on whether to initiate or remove. A good commander ensures that flags are managed on time and correctly. Anything other is just poor leadership.

Most cases are very clear and you flag and leave them flagged until they overcome the status. The only cases I've seen discretion with flags is when it comes to commanders investigations and the commander waits to see the investigation and ensure that they feel the wrongdoing truly occurred before flagging a Soldier. You'll see this more based on the nature of the allegation and the who the parties involved are.
I would not use a regulation though to try and force discretion as the commander can flag right away. It would also be their option to drag their feet a little bit, but no one could require that.
We need more specifics for a better answer.