To The Moon

50 years ago, on April 26th, 1973, the Chicago Board Options Exchange (CBOE) opened its doors and listed option trading began. For the first time, such things as standardized striking prices and expiration dates were available on an option contract.

On that first day, call options (no puts) were traded on 16 stocks. A lot has changed over the decades since that pioneering exchange introduced contracts to buy or sell 100 shares of stock at a fraction of the price of the underlying security.

Trading volume on options markets has soared especially in recent years. At least 16 exchanges handle options trades in the U.S. today.

A brief history of options.

I. Inception of Options and CBOE

In 1935, shortly after the SEC began regulating the over-the-counter options market, it granted the Chicago Board of Trade (CBOT) a license to register as a national securities exchange.

In 1968, Chicago Board Options Exchange (CBOE) was created as a spin-off entity from the CBOT in 1973.

1973 also saw the birth of the Options Clearing Corporation (OCC), which was created to ensure that the obligations associated with options contracts are fulfilled in a timely and reliable manner. And so it was that on April 26 of that year, the opening bell sounded on the Chicago Board Options Exchange (CBOE).

On opening day, the CBOE only allowed trading of call options on a scant 16 underlying stocks. However, a somewhat respectable 911 contracts changed hands, and by the end of the month the CBOE’s average daily volume exceeded that of the over-the-counter option market.

Source: CBOE website

By June 1974, the CBOE average daily volume reached over 20,000 contracts.

In 1975, the Philadelphia Stock Exchange and American Stock Exchange opened their own option trading floors, increasing competition and bringing options to a wider marketplace.

In 1977, the CBOE increased the number of stocks on which options were traded to 43 and began to allow put trading on a few stocks in addition to calls.

By 1980, the SEC had put in place new regulations regarding market surveillance at exchanges, consumer protection and compliance systems at brokerage houses. Finally they lifted the moratorium, and the CBOE responded by adding options on 25 more stocks.

II. Evolution: Emergence of index options and VIX

The next major event was in 1983, when index options began to trade. This development proved critical in helping to fuel the popularity of the options industry.

ibid.

The first index options were traded on the CBOE 100 index, which was later renamed the S&P 100 (OEX). Four months later, options began trading on the S&P 500 index (SPX). Today, there are upwards of 50 different index options, and since 1983 more than 1 billion contracts have been traded.

In 1993, CBOE developed the CBOE Volatility Index( $Cboe Volatility Index(VIX)$ )，as we known a financial benchmark designed to be an up-to-the-minute market estimate of expected volatility of the $S&P 500(.SPX)$.

ibid.

In the mid-’90s, web-based online trading started to become popular, making options instantly accessible to members of the general public. Long, long gone were the days of haggling over the terms of individual option contracts.

This was a brand-new era of instant options gratification, with quotes available on demand, covering options on a dizzying array of securities with a wide range of strike prices and expiration dates.

The emergence of computerized trading systems and the internet has created a far more viable and liquid options market than ever before. As of this writing, the listed options exchanges in the United States include the Boston Stock Exchange, Chicago Board Options Exchange, International Securities Exchange, NASDAQ OMX PHLX, NASDAQ Stock Market, NYSE Amex and NYSE Arca.

Let’s Trade Options on Tiger Trade!