What Is the CBOE?

By Ashley Kilroy · January 02, 2023 · 6 minute read

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What Is the CBOE?

The CBOE is CBOE Global Markets, the world’s largest options trading exchange. While you may already be familiar with the New York Stock Exchange and Nasdaq, those are only two of the exchanges investors use to trade securities.

In addition to the option trading exchange, CBOE has also created one of the most popular volatility indices in the world.

Learn more about CBOE and what it does.

What Is the CBOE Options Exchange?

CBOE, or CBOE Global Markets, Inc., is a global exchange operator founded in 1973 and headquartered in Chicago. Investors often turn to CBOE to buy and sell both derivatives and equities. In addition, the holding company facilitates trading over a diverse array of products in various asset classes, many of which it introduced to the market.

The organization also includes several subsidiaries, such as The Options Institute (an educational resource), Hanweck Associates LLC (a real-time analytics company), and The Options Clearing Corporation or OCC (a central clearinghouse for listed options).

The group has global branches in Canada, England, the Netherlands, Hong Kong, Singapore, Australia, Japan, and the Philippines.

CBOE is also a public company with a stock traded on the cboe exchange.

What Does CBOE Stand For?

Originally known as the Chicago Board Options Exchange, the company changed its name to CBOE in 2017.

💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.

History of the Chicago Board of Options Exchange

Founded in 1973, CBOE represented the first U.S. market for traders who want to buy and sell exchange-listed options. This was a significant step for the options market, helping it become what it is today.

In 1975, the CBOE introduced automated price reporting and trading along with The Options Clearing Corporation (OCC).

Other developments followed in the market as well. For example, CBOE added “put” options in 1977. And by 1983, the market began creating options on broad-based indices using the S&P 100 (OEX) and the S&P 500 (SPX).

In 1993, the CBOE created its own market volatility index called the CBOE Volatility Index (VIX). In 2015, it formed The Options Institute. With this, CBOE had an educational branch that could bring investors information about options.

CBOE continues its educational initiatives. The Options Institute even schedules monthly classes and events to help with outreach, and it offers online tools such as an options calculator and a trade maximizer.

From 1990 on, Cboe began creating unique trading products. Notable introductions include LEAPS (Long-Term Equity Anticipation Securities) launched in 1990; Flexible Exchange (FLEX) options in 1993; short-term options known as Weeklys in 2005; and an electronic S&P options contract called SPXpm in 2011.

Understanding What the CBOE Options Exchange Does

The CBOE Options Exchange serves as a trading platform, similar to the New York Stock Exchange or Nasdaq. It has a history of creating its own tradable products, including options contracts, futures, and more. Cboe also has acquired market models or created new markets in the past, such as the first pan-European multilateral trading facility (MTF) and the institutional foreign exchange (FX) market.

The CBOE’s specialization in options is essential, but it’s also complicated. Options contracts don’t work the same as stocks or exchange-traded funds (ETFs). They’re financial derivatives tied to an underlying asset, like a stock or future, but they have a set expiration date dictating when investors must settle or exercise the contract.That’s where the OCC comes in.

The OCC settles these financial trades by taking the place of a guarantor. Essentially, as a clearinghouse, the OCC acts as an intermediary for buyers and sellers. It functions based on foundational risk management and clears transactions. Under the Security and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), it provides clearing and settlement services for various trading options. It also acts in a central counterparty capacity for securities lending transactions.

Recommended: How to Trade Options

CBOE Products

Cboe offers a variety of tradable products across multiple markets, including many that it created.

For example, CBOE offers a range of put and call options on thousands of publicly traded stocks, (ETFs), and exchange-traded notes (ETNs). Investors use these tradable products for specific strategies, like hedging.

Or, they use them to gain income by selling cash-secured puts or covered calls. These options strategies give investors flexibility in terms of how much added yield they want and gives them the ability to adjust their stock exposures.

Investors have the CBOE options marketplace and other alternative venues, including the electronic communication network (ECN), the FX market, and the MTF.

💡 Quick Tip: Options can be a cost-efficient way to place certain trades, because you typically purchase options contracts, not the underlying security. That said, options trading can be risky, and best done by those who are not entirely new to investing.

CBOE and Volatility

The CBOE’s Volatility Index (VIX) gauges market volatility of U.S. equities. It also tracks the metric on a global scale and for the S&P 500. That opens up an opportunity for many traders. Traders, both international and global, use the VIX Index to get a foothold in the large U.S. market or global equities, whether it’s trading or simply exposing themselves to it.

In late 2021, CBOE Global Markets extended global trading hours (GTH) on CBOE Options Exchange for its VIX options and S&P 500 Index options (SPX) to almost 24 hours per business day, five days a week. They did this with the intention to give further access to global participants to trade U.S. index options products exclusive to CBOE. These products are based on both the SPX and VIX indices.

This move allowed CBOE to meet growth in investor demand. These investors want to manage their risk more efficiently, and the extended GTH could help them to do so. With it, they can react in real-time to global macroeconomics events and adjust their positions accordingly.

Essentially, they can track popular market sentiment and choose the best stocks according to the VIX’s movements.

Recommended: How to Use the Fear and Greed Index to Your Advantage

The Takeaway

While CBOE makes efforts to educate and open the market to a broader range of investors, options trading is a risky strategy.

Investors should recognize that while there’s potentially upside in options investing there’s usually also a risk when it comes to the options’ liquidity, and premium costs can devour an investor’s profits. That means it’s not the best choice for those looking for a safer investment.

While some investors may want further guidance and less risk, for other investors, options trading may be appealing. Investors should fully understand options trading before implementing it.

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Photo credit: iStock/USGirl

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
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