The Options Exchange
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The venues for trading listed options are called the options
exchanges. An options exchange, like a stock exchange, is an
auction market where buyers and sellers gather to trade securities;
in this case, the securities are listed options. The first of
these exchanges, the Chicago Board Options Exchange (CBOE),
was established in April of 1973. Because of its success, others
have been established. They are our casino palaces.
(Again, remember when we say “stocks,” we also are referring
to futures.)
Options are also available on stock market indexes, such as
the Dow Jones Industrial Average, S&P 500 Index and the S&P 100
Index, which includes 100 large capitalized stocks in its average.
The stocks that are listed on the option exchanges must
meet a set of strict criteria.
Each individual stock must have at least three different options
listed on the Exchange but can have many more. Each
common stock has listed options that expire in the next two
months, and every three months—up to nine months in the
future.
In addition, in 1990, long term options were introduced.
The long term options can run more than two years before they
expire and are referred to as Leaps® (Long-Term Equity Anticipation
Securities).
Why do some stocks have more options and more strike prices than others? When options for a stock are first listed on
the Exchange, options with one or two strike prices will become
available. According to the rules, each will have four to eight
listed options for a specific stock. If there is a significant change
in the market price of the underlying common stock, new options
with new strike prices then become available. Normally, options
with new strike prices are established at 5-point intervals,
unless the stock is below 50. Then strike prices are usually available
at 2-1/2-point intervals. Many stocks have hundreds of different
options available.
The venues for trading listed options are called the options
exchanges. An options exchange, like a stock exchange, is an
auction market where buyers and sellers gather to trade securities;
in this case, the securities are listed options. The first of
these exchanges, the Chicago Board Options Exchange (CBOE),
was established in April of 1973. Because of its success, others
have been established. They are our casino palaces.
(Again, remember when we say “stocks,” we also are referring
to futures.)
Options are also available on stock market indexes, such as
the Dow Jones Industrial Average, S&P 500 Index and the S&P 100
Index, which includes 100 large capitalized stocks in its average.
The stocks that are listed on the option exchanges must
meet a set of strict criteria.
Each individual stock must have at least three different options
listed on the Exchange but can have many more. Each
common stock has listed options that expire in the next two
months, and every three months—up to nine months in the
future.
In addition, in 1990, long term options were introduced.
The long term options can run more than two years before they
expire and are referred to as Leaps® (Long-Term Equity Anticipation
Securities).
Why do some stocks have more options and more strike prices than others? When options for a stock are first listed on
the Exchange, options with one or two strike prices will become
available. According to the rules, each will have four to eight
listed options for a specific stock. If there is a significant change
in the market price of the underlying common stock, new options
with new strike prices then become available. Normally, options
with new strike prices are established at 5-point intervals,
unless the stock is below 50. Then strike prices are usually available
at 2-1/2-point intervals. Many stocks have hundreds of different
options available.