Difference between revisions of "Chicago Board Options Exchange"

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Options on interest rate products were added at CBOE in 1989, and the next few years saw more new products and indexing tools, such as [[Long-term Equity AnticiPation Securities]] ([[LEAPS]]) (1990), [[FLEX options]] and the [[VIX]] volatility index (both in 1993), the [[Dow Jones Industrial Average]] ([[DJX]]) in 1997, and the [[VXN Volatility Index]] ([[VXN]]) in 2001. In 2002 the CBOE S&P 500 [[BuyWrite Index]] ([[BXMSM]]) was introduced as the first major benchmark for options performance in a study by a Duke University professor.   
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Options on interest rate products were added at CBOE in 1989, and the next few years saw more new products and indexing tools, such as [[Long-term Equity AnticiPation Securities]] ([[LEAPS]]) (1990), [[FLEX options]] and the [[[[VIX]] volatility index]] (both in 1993), the [[[[Dow Jones Industrial Average index]] ([[DJX]]]]) in 1997, and the [[VXN Volatility Index]] ([[VXN]]) in 2001. In 2002 the CBOE S&P 500 [[BuyWrite Index]] ([[BXMSM]]) was introduced as the first major benchmark for options performance in a study by a Duke University professor.   
  
 
   
 
   

Revision as of 07:56, 19 September 2007

Chicago Board Options Exchange
Cboe logo.gif
Founded 1973
Headquarters Chicago, Illinois
Key People William Brodsky, chairman
Products Options on equities, equity indexes, ETFs and interest rate products (+futures and stock exchange)
Website www.cboe.com

The Chicago Board Options Exchange ([1] was founded in 1973 as the first U.S. options exchange trading standardized, listed options. The Options Clearing Corporation was formed two years later, and further standardization was made with the addition of the Black-Scholes pricing model.


CBOE today offers options on 1900+ equities, 28 broad (based indexes) and sector-based indexes and 96 ETFs, and options on four interest rate products. CBOE is regulated by the Securities and Exchange Commission (SEC).


As one of six options exchanges in the United States, CBOE is the oldest and largest in total annual trading volume.

--CBOE trading volume in 2006 totaled a record 675 million contracts, a 44% increase over 2005.

--Volume on CBOE’s equity options, an area in which CBOE has established a foothold over the years, rose 42%.

--The exchange’s most actively traded product is the S&P 500 index (SPX), which in 2006 recorded a 104.3-million-contract volume record.

History

Launched in April 1973, the Chicago Board Options Exchange was conceived of by the Chicago Board of Trade (CBOT). At the time of conception, futures volume was flagging, and the CBOT looked for new avenues to supplement revenues. Exchange-traded options was the answer. Shortly after CBOE was launched, grain trading volume took off as grain and oilseed prices rose to record levels on international buying. Were the CBOT to have known about this eventual extended market rally and subsequent transactional profits, some question whether CBOE would have made it onto the CBOT’s drawing board.


According to an article which chronicles the introduction of listed options (SFO magazine[2], April 2003), the “birthing room” for CBOE was in the former smoking lounge of the CBOE, “a windowless, little room at the southeast corner of the then-120-year old grains exchange.”


Early trading volume averaged around 1,000 calls a day, and puts were not introduced for another four years. A year after launch, CBOE trading volume had grown 40-fold, allowing the exchange to move onto its own trading floor. This was facilitated by double-decking the CBOT trading floor at 141 West Jackson, with CBOE on the top floor and CBOT below.


One of the most crucial advances for CBOE was the launch of stock index options. In March 1983, CBOE introduced the CBOE-100 Index, later renamed the S&P 100 Index (OEX). Four months later, options trading on the S&P 500 Index (SPX) was launched.


In 1984, CBOE moved into its current ten-story building. Annual volume in that year exceeded 100 million contracts for the first time. Also during the year, CBOE launched its Retail Automatic Execution System (RAES) to facilitate electronic order execution.


The Options Institute, the educational arm for CBOE, debuted in 1985, to educate investors about options. Over the years, Options Institute has added comprehensive live and online curricula, taught by trading industry professionals. In 1992, the Options Industry Council was formed as an industry body devoted to the expansion of investor education, representing all U.S. options exchanges. Nonetheless, CBOE’s Options Institute continues as a strong source of education.


Options on interest rate products were added at CBOE in 1989, and the next few years saw more new products and indexing tools, such as Long-term Equity AnticiPation Securities (LEAPS) (1990), FLEX options and the [[VIX volatility index]] (both in 1993), the [[Dow Jones Industrial Average index (DJX]]) in 1997, and the VXN Volatility Index (VXN) in 2001. In 2002 the CBOE S&P 500 BuyWrite Index (BXMSM) was introduced as the first major benchmark for options performance in a study by a Duke University professor.


In 1998, its 25-year anniversary, CBOE annual volume surpassed 200 million contracts for the first time. Subsequent years brought more changes in trading technology, such as the Designated Primary Market Maker system, the Rapid Opening System, and CBOEdirect.


In 2003, in response to expanding technology needs of users, CBOE introduced its CBOE Hybrid Trading System to provide customers a blended solution of both screen-based and open outcry trading models. Also during 2003, CBOE and the other options exchanges successfully completed their Option Intermarket Linkage Plan, the culmination of CBOE’s 2000 proposal to the SEC to adopt a plan to link U.S. options markets.


Shifting the emphasis of CBOE’s corporate business model from a membership association to a for-profit model has driven the Exchange to seek new business opportunities. CBOE offers futures through the CBOE Futures Exchange, which opened for trading in 2004, and in 2006 the CBOE Stock Exchange (CBSX) was launched. Both exchanges are fully electronic.


Also in 2006, CBOE forged an alliance with HedgeStreet, Inc., an all-electronic futures exchange, for the joint development of new products, sharing of technology services, and marketing and support for HedgeStreet’s binary options and futures products.


Products


--Options on 1900+ equities

--28 broad-based indexes and sector-based indexes and 96 ETFs

--Options on four interest rate products

--Created CBOE Futures Exchange

--Created CBOE Stock Exchange