Founded in 1973, the CBOE Options Exchange (now officially known as the CBOE Options Exchange, part of CBOE Global Markets Inc.) is the largest options exchange in the world. It primarily focuses on options involving individual equities, indexes, and interest rates.
Initially known as the Chicago Board Options Exchange, the CBOE has since evolved significantly and has become a cornerstone of the financial markets. The name change in 2017 was part of a rebranding initiative by its holding company, CBOE Global Markets. Traders commonly refer to the exchange as the CBOE, pronounced "see-bo." One of the CBOE's notable inventions is the CBOE Volatility Index (VIX), which serves as the benchmark for measuring market volatility.
Key Takeaways
- Founding and Location: The CBOE was established in Chicago in 1973 and remains a crucial hub for options trading.
- Name Change: Originally the Chicago Board Options Exchange, it rebranded in 2017.
- Corporate Structure: In 2010, the exchange incorporated as a holding company, CBOE Global Markets, with the options exchange as its main asset.
- Volatility Products: The CBOE houses the VIX index among many other volatility instruments, making it a leading platform for traders looking to gauge market sentiment.
Understanding the CBOE Options Exchange
The CBOE provides trading across a plethora of asset classes and geographical markets. These include options, futures, U.S. and European equities, exchange-traded products (ETPs), global foreign exchange (FX), and multi-asset volatility products. It not only stands as the largest options exchange in the U.S. but also has recently become a critical player in Europe's stock exchange scene, trading values, which affirms its status as a top global market for ETP trading.
Historical Significance
The CBOE has a rich history that includes the establishment of the CBOE Clearing Corp. This organization evolved into the Options Clearing Corporation (OCC), which acts as the central clearinghouse for virtually all U.S. options trades. Over the years, the CBOE has continuously innovated to serve growing market demands, which is reflected in its ongoing development of trading platforms, improved technology, and risk management practices.
The Options Institute
Beyond facilitating trades, CBOE created The Options Institute in 1985, the educational branch of the exchange. The Options Institute aims to educate investors globally about options trading, providing valuable resources through seminars, webinars, and online courses. This initiative enhances traders’ knowledge and fosters informed decision-making in the options market.
CBOE Products
The CBOE offers a plethora of products designed to meet diverse investor needs:
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Options on Equities and ETFs: The exchange provides access to put and call options on thousands of publicly traded stocks, Exchange-Traded Funds (ETFs), and Exchange-Traded Notes (ETNs). These products help investors hedge their investments and generate income, most notably through covered calls and cash-secured puts.
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Index Options: Options covering stock and sector indexes, including the S&P 500, Dow Jones Industrial Average, Russell Indexes, and various NASDAQ and MSCI Indexes are available on the platform. Sector-specific options that cover the components of the S&P 500 are also part of their offerings.
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Specialty Indexes: The CBOE also features social media indexes and indexes based on options strategies such as "put write," butterfly, and collar.
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The VIX Index: Developed in 1993, the VIX Index has become the definitive measure of market volatility, often referred to as the "fear gauge." It calculates expected future volatility based on real-time prices of near-the-money options on the S&P 500 Index. Traders monitor the VIX closely, especially during market uncertainty when its values significantly increase.
Trading Volume and Milestones
As of Q1 2022, the CBOE reported record trading volumes, with a total of 830.3 million options contracts traded, marking a significant milestone in its operational history. The exchange also reached an all-time high in average daily volumes of 13.4 million contracts traded.
Historical Developments
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Introduction of Put Options: When the CBOE launched in 1973, it exclusively offered call options. The addition of put options occurred in 1977, providing a fuller range of trading options for investors.
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Launch of LEAP Options: Long-Term Anticipation Securities (LEAPs)—options with expiration periods extending beyond one year—were first introduced by the CBOE in 1990. This innovation offered traders long-term strategic play opportunities.
Conclusion
The CBOE Options Exchange continues to play an integral role in global financial markets. It offers a venue for various trading strategies and risk management tools while providing extensive educational resources for investors. With its pioneering efforts in product development, trading technology, and unwavering commitment to market education, the CBOE remains a vital resource for traders and investors seeking to navigate the complex options landscape.
Disclaimer
Please note that Investopedia does not provide personalized tax, investment, or financial advice. This information is presented without consideration of any individual's investment objectives, risk tolerance, or financial situation and may not be suitable for all investors. Investing involves risks, including the potential loss of principal.