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What Is the CBOE?

By Ashley Kilroy · October 28, 2021 · 4 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

What Is the CBOE?

While you may already be familiar with the New York Stock Exchange and Nasdaq, those aren’t the only exchanges that investors use to trade securities.

One such exchange is Cboe Global Markets, the world’s largest option trading exchange. Cboe has also created one of the most popular volatility indices in the world.

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 (a central clearinghouse for listed options).

The group has global branches in Canada, England, Ireland, 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.

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.

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 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 SEC and CFTC, it provides clearing and settlement services for various trading options. It also acts in a central counterparty capacity for securities lending transactions.

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, exchange-traded funds (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.

Recommended: How to Trade Options

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 VIC Index to get a foothold in the large U.S. market or global equities, whether it be trading or simply exposing themselves to it.

In early 2021, Cboe Global Markets announced a change that would occur later in the year. The market operator intends to extend 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. Using this update, they hope 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 VIC indices.

This move allows Cboe to meet growth in investor demand. These investors want to manage their risk more efficiently, and the extended GTH will allow 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 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 that investors should fully understand before implementing it. 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.

For some investors, options are the right choice. Others may need further guidance. If you want help with your trading strategy, consider using the SoFi Invest® stock trading platform. While it doesn’t offer options trading, it does have automated investing options that help you stay within your risk tolerance goals. Alternatively, if you’re confident, the Active investing route allows you to trade in a range of products, all without commission or account minimums.

Photo credit: iStock/USGirl


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