Cboe Global Markets
Cboe trading floor , 1995 . Opening day on the new Cboe trading floor , June 6 , 2022 . Pictured here is the S & P 500 Index ( SPX ) options pit .
Cboe Global Markets
started trading , was an option pricing model by Professors Fisher Black and Myron Scholes that was later expanded through the work of Professor Robert Merton . Dan Galai , a doctoral candidate at the University of Chicago when Cboe started , was the first academic to examine the empirical validity of the Black-Scholes model using Cboe ’ s first six months trading data . Over the years , as new options products have been introduced to investors , numerous academics have researched and addressed topics such as options pricing , market structure and market impact , while the SEC has made use of academic reports and studies in helping guide their decision making .
Change Over the Years
Over the years , in response to investor preferences , many modifications have been made to the rules and practices of the options exchanges to permit newly selected stock options to be listed at considerably narrower strike price intervals and more expiration months . In addition , in response to investor requests for longer dated expirations following the market crash in 1987 , Long-Term Equity Anticipation Securities ( LEAPS ) were created with expirations approaching three years .
As both retail and professional stock investors became more comfortable with
low-cost passive investing strategies , options exchanges added index options and Exchange Traded Funds ( ETF ) to their mix of tradable products . Some exchanges created their own broad market and sector indexes , while others sought license agreements from well-known index providers such as Dow Jones and Standard and Poor ’ s . Since index options were designed to settle in cash upon exercise , rather than by stock settlement , new rules and procedures needed to be adopted to accommodate this feature . Also , most index options were designed with a “ European exercise ” feature which limits exercise to at or near a contract ’ s expiration .
The introduction of numerous new products has resulted in the current listing of nearly 6,000 underlying stocks and exchange traded funds resulting in more than 1.4 million options series available for trading . In addition , institutional customers who meet certain standards can trade Flexible Options ( FLEX ), where the terms of those contracts can be customized .
The model of a separate but affiliated marketplace and clearinghouse that Cboe pioneered 50 years ago has been adopted by numerous exchanges across the globe . The success of the US listed options market continues to attract new investors who have become aware of , and comfortable with , the uses ( and risks ) that options provide . It ’ s highly doubtful that even the most optimistic Cboe supporter could have ever thought its opening day trading volume of 911 contracts would grow to average 13.6 million contracts a day in 2022 .
Howard A . Baker is a member of the Editorial Advisory Board of Financial History magazine and former head of the Options Division of the American Stock Exchange .
Sources “ An Auction Market for Options .” American
Stock Exchange . January 18 , 1974 .
Listed Options : 25 Years of Investment Success : A Commemorative Book . Options Clearing Corporation .” April 26 , 1998 .
“ Options Regulation .” The Review of Securities Regulation . August 14 , 1974 .
Per Curiam Decision of US Court of Appeals for the Ninth Circuit , Golden Nugget v . American Stock Exchange . September 23 , 1987 .
“ Report of the Special Study of the Options Markets to the Securities and Exchange Commission .” December 22 , 1978 .
Stoll , Hans R . and Robert E . Whaley . “ Expiration Day Effects : What Has Changed ?” Financial Analysts Journal . January – February 1991 .
“ Understanding the Options Marketplace .” American Stock Exchange . April 6 , 1988 .
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