options
Options are financial instruments known as simple derivatives. They can trade and be structured as stock, index and interest rate options. ... In addition, options are contracts between two parties, a buyer and a seller. ... But what makes options one of the most popular investments today? There are many strategies that options can be used.for investors such as hedging, speculation and the diversity of trading these options just like stocks. ... The Chicago Board Option Exchange otherwise known as the CBOE, revolutionized option trading by creating standardized listed stock options. ... Prior to 1973, options were traded on an unregulated basis and did not respond to a “fair and orderly market”. Today the options market has grown to be a leader in the financial industry. ... I will discuss how basic options are composed and the mechanics of buying, selling, exercising and settlement of option contracts. I will further discuss how other financial products are linked to options and what makes them so popular. Overall options are like any other financial products; the basic principle remains the same, one investor makes money and other losses. ... Prior to 1973, traditional options were traded on over-the-counter for years, however, they never became a household investment. ... As a result, most of these options expired. ... Although the CBOE listed only call options on sixteen underlying securities, it help spark a new product in the financial community by trading over one million option contracts during the first year. ... Put options were first introduced in 1977. The CBOE became very successful because it structured all options to classes and strike prices. Equity options with strike prices from $25 to $200 are issued $5 variations; for strike prices below $25, options are issued in 21/2-point multiples. Equity options are issued in three, six and nine month intervals and CBOE offer LEAPS, long term options that are expiring in three years. ... Since 1973, equity options became popular and other securities exchanges began entering the business. The American Stock Exchange and the Philadelphia Stock Exchange began trading options in 1975. On March 11,1983 the CBOE introduced broad based index options in the form of Standard & Poor’s 100 index. ... 2 One of the most popular broad based options are the Standard & Poor’s 500 Index (SPX). These options serve as a benchmark for portfolio performance based on a weighted average of 500 stocks from a broad range of industries. In October 1992 options on individual sector indices were listed also. These options were based on specific industries such as automotive, banking, and technology. ... Options are traded like stock with buyers making bids and sellers making offers. In addition, options can be bought and sold just like stocks.