Options Trading CBOE

After 37 years as a private member owned organization the Chicago Board Options Exchange (CBOE) is filing an initial public offering for up to $300 million. CBOE was the world’s first marketplace for options. Founded in 1973 CBOE’s daily trading volume has reached to over a billion contracts a year. Options trading CBOE seems like a contradiction in terms but options trading CBOE could be quite profitable. All different kinds of options trading you engage in with the CBOE ought to be right at home at the world’s first options exchange.

The CBOE oversees roughly four and a half million trades a day and will soon be overseeing its own. CBOE Holdings Inc. does not say when they will present the IPO or how many shares they will sell. The question for the options trades is if with the ever increasing use of derivatives such as options and online trading the business of CBOE will continue to flourish, making the company an attractive investment. The question for options traders will soon be, what is an option worth if the option is on CBOE?

Once the Chicago Board Options Exchange becomes public it will be eligible for options trading. The same options strategies will apply to CBOE as to any equity. A long straddle will provide the trader with the opportunity for profit is the new stock moves substantially up or down. Options expiration dates will be the same as other options. The only difference from other stocks will be that CBOE options could be listed on their own exchange.

An issue in options trading CBOE is the attention being given to regulating derivatives by the Obama administration. Changes in short selling rules that will take effect in May will include a ban on flash orders. These trading tools give a very brief trading edge to investors. CBOE spokespersons have been quoted as saying that their business will be adversely affected by changes in the rules regulating options trading. What is an option worth may become an issue with trading CBOE options if the government comes down hard on derivatives in general or options in particular. The White House Economic Advisor, Paul Volcker, has been quoted as saying that institutional trading in hedge funds by banks should be restricted which could be a harbinger of less volume in options trading.

Part of risk management in options trading as will apply to options trading CBOE will be keeping up with new regulations. It will also mean keeping up with trader sentiment. There can be a psychological tendency in trading options that will predict a disaster in the options market and for CBOE. That disaster may well not happen. When is trading call options a good option? When is trading put options a good option? If they were good options yesterday they still are today and will be tomorrow. Just because there is current concern about trading volume and flexibility in options trading does not ever mean that trading will go away. Don’t let the current hype about trading regulations distract you from the knowledge that markets go up and down and there is profit to be made going either way.

Related Articles

• Options exchange CBOE files for $300 million IPO (seattletimes.nwsource.com)
• U.S. Options Exchange CBOE Files for IPO (seekingalpha.com)
• Is Option Greed a Worrisome Sign? (seekingalpha.com)