A Brief History of Options

It has been close to thirty seven years stock options have been trading on organized exchanges.

In 1973, Chicago board of trade (CBOT) founded Chicago board of options exchange (CBOE) and call options on 16 securities started trading. In 1977, put options began trading.  A decade later, index options appeared on the scene.

In 1975, the Securities and Exchange Commission (SEC) approved the Options Clearing Corporation (OCC), which is still the clearing agent for all US-based options exchanges.  As clearing agent, the OCC facilitates the execution of options trades by transferring funds, assigning deliveries, and guaranteeing the performance of all obligations.

The early 1970s also witnessed other important events related to options trading.  For instance, in 1973, Fischer Black and Myron Scholes prepared a research paper that outlined an analytic model that would determine the fair market value of call options.  Their findings were published in the Journal of Political Economy and the model became known as the Black and Scholes Options-Pricing Model.  It is still the most widely used options-pricing model used by traders today. 

Today almost seven different exchanges provide trading these investment vehicles including, Philadelphia Stock Exchange (PHLX), American Stock Exchange (AMEX), Pacific Stock Exchange (PCX), Boston Stock Exchange (BOX) and others.

In 1983, the exchange began trading options on the S&P 100 Index ($OEX).  The OEX was the first index to have listed options.  The CBOE Volatility Index ($VIX) became the market’s first real-time volatility index in 1986.  VIX was, and still is, based on the option prices of the OEX.   

In 1990, Long-term Anticipation Securities (LEAPS) were introduced.  The OCC and the options exchanges created the Options Industry Council (OIC) in 1992.  The OIC is a non-profit association created to educate the investing public and brokers about the benefits and risks of exchange-traded options.   In 1998, the options industry celebrated its 25th anniversary.  In 1999, the AMEX began trading options on the Nasdaq 100 QQQ (QQQ)—an exchange traded fund that is among the most actively traded in the marketplace today. 

On May 26, 2000, the International Securities Exchange (ISE) opened.  It was the first new US exchange in 27 years.  In addition, ISE became the first all-electronic US options exchange. In 2001, the options exchanges converted prices from fractions to decimals.  Additionally, two new implied volatility indices were launched in 2001.  While the Chicago Board Options Exchange created the Nasdaq 100 Volatility Index ($VXN), the American Stock Exchange (AMEX) launched the Nasdaq 100 QQQ Volatility Index ($QQV).  Both were designed to provide option traders with real-time information regarding implied volatility in the technology sector.  October 24, 2008 - The CBOE Volatility Index (VIX) reaches an intra-day all-time high of 89.53. 1.2 billion contracts during 2008, the busiest year in the Exchange's 35 year history.

In 2010 options symbology or the way they are named was changed from its older coding of simple four- or five-character letter codes that have been in use since the Chicago Board Options Exchange (CBOE) first started trading standardized listed options back in 1973. They now use more-definitive codes containing a combination of up to 22 letters and numbers.

That was a short history of options, with an introduction to the options symbology. More about Calls and Puts I will write in the next posts.