Options and Other Market Flashcards
What is the largest options exchange?
The CBOE. Almost no trading of options occurs OTC
What requirement must options meet to be exchanged on the CBOE?
The issuer must be actively traded on the NYSE, AMEX, or NASDAQ
What happens if option contracts of issuer are delisted?
No new issues can be issued, but existing contracts can be traded until their expiration. They can also still be exercised
If trading of stock stops on exchange, what happens to options trades?
They also stop. There is no way to price them
What is a CBOE floor broker?
They are used to execute transactions on the CBOE. They do NOT hold inventory. They can accept ALL trade orders and must find the best market
When can a floor broker cross orders on the CBOE?
If the floor broker first requests bids and offers (accepts highest bid or lowest offer). If not taken, he announces via public outcry that he’s crossing
What is a market maker on the CBOE?
Individuals who trade for their OWN account in a security that they’re registered to. They cannot trade with the public; they trade with floor brokers
What is the OBO (order book official) on the CBOE?
If a floor broker gets an order that can’t be executed, order can be given to the OBO. They are an EXCHANGE EMPLOYEE who work on SALARY basis. They cannot accept stop orders or spread/straddle orders
What is the Spread Priority rule?
During the trading day, spreads and straddles take priority over single contract limit orders
What is accommodation liquidation? (AKA Cabinet Trades)
For worthless options, instead of letting them expire worthless, the contract is closed at $1 limit per contract. They are placed in a “cabinet” for execution
