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What is the Chicago Board of Options Exchange (CBOE)?

2017-07-13T07:00:52+00:00

The term 'Chicago Board of Options Exchange (CBOE)' is included in the Investments edition of the Financial Dictionary. Get yours now on amazon in ebook or paperback format. Read more here...

CBOE is the acronym for the Chicago Board of Options Exchange. The exchange arose in 1973. Since then it has grown to become the biggest options’ market on the planet. As a market leader in technological innovation and creative financial products that are new and ground breaking, it has pushed the envelope on electronic forms of trading over the years. The Chicago Board concentrates its efforts on options contracts pertaining to indices, single stock equities, and interest rates. This exchange has such a broad and deep reach in options that it can claim to host a majority of the options traded around the globe. Industry insiders refer to this largest option exchange in the world as the “See-bo.”

The CBOE has come an enormous distance since its very first trading day back in 1973. On that first day, the exchange offered 16 individual stocks and actually traded 911 contracts. The daily average volume nowadays is well in excess of a million contracts every market day. They trade these massive numbers of options primarily on single equity options, indices options, and options on ETF exchange traded funds and ETN exchange traded notes.

The market is the home for the volatility index options, which trade on this index investors affectionately call the VIX. This VIX is universally held to be the leading equity market volatility barometer in the globe. Besides this index, investors can also trade options on such internationally known and popular indices as the SPX S&P 500, the DJX Dow Jones 30 Industrials, the London FTSE, the MSCI, the NDX NASDAQ 100, and the RUT Russell 200 Index.

The exchange has counted itself a global leader and even pioneer in the purveying of stock indices options which are cash settled. Investors are able to take advantage of these tools in order to hedge their portfolio exposure and manage their risk. They can also gather regular premium income to help increase or stabilize the returns on their various portfolios. Every single trading day, literally billions of dollars in value of options transact through these ranges of popular and beloved indices.

The CBOE boasts creating the single stock options market all by itself, as well as the universe of ETF and ETN options. Investors throughout the world can utilize these exchange traded product and single stock options to hedge the positions they have in the stocks, manage their risk, and create additional income through writing covered calls.

Today’s exchange provides the vast range of literally thousands of different publically exchange traded stocks, ETNs and ETFs with option tradability. By selling cash secured puts and covered calls, investors are able to boost their portfolio income and hedge their various literal stock positions. It is important to keep in mind that these particular financial products come with physical settlement when expiration occurs. This means that any options on single stock securities still held at expiration would be delivered. With the options on the various indices, the expiration settlement is cash-based.

CBOE worked to ensure that investors of all sizes could participate in these contracts. To that effect, they pioneered the concept of mini options. The exchange’s website offers a full range of product details and contract specifications on the various mini options contracts, such as the ever popular Mini S&P 500 contract.

In other ground breaking product firsts, CBOE led the world with such innovative options ideas as weekly options that offer end of week expiration for precisely targeted strategies, quarterly and end of month options on the S&P 500, FLEX Options that permit investors to customize their options contract terms (including styles of exercise, exercise prices and dates), strategy benchmark indices like the PUT and BXM indices, and social media indices. With the Social Media Indexes, the Chicago Board of Options Exchange is partnering up with SMA Social Market Analytics to create a range of interesting indices based on such SMA data which allows for the CBOE-SMA Index Suite of products based on social media.

The term 'Chicago Board of Options Exchange (CBOE)' is included in the Investments edition of the Financial Dictionary. You can get your copy on amazon in Kindle or Paperback version. See more details here.