In the late 1960s, as exchange volume for commodities began to shrink, the Chicago Board of Trade (CBOT) explored opportunities for diversification into the options market. Joseph W. Sullivan, Vice President of Planning for the CBOT, studied the over-the-counter option market and concluded that two key ingredients for success were missing. First, Sullivan believed that existing options had too many variables. To correct this, he proposed standardizing the strike price, expiration, size, and other relevant contract terms. Second, Sullivan recommended the creation of an intermediary to issue contracts and guarantee settlement and performance. This intermediary is now known as the Options Clearing Corporation.
After four years of study and planning, the Chicago Board of Trade established the
Chicago Board Options Exchange (CBOE) and began trading listed call options on 16 stocks on April 26, 1973. The CBOE’s first home was actually a smoker’s lounge at the Chicago Board of Trade. After achieving first-day volume of 911 contracts, the average daily volume skyrocketed to over 20,000 the following year. Along the way, the new exchange achieved several important milestones.
After repeated delays by the SEC, put trading finally began in 1977. Determined to monitor the situation closely, the SEC only permitted puts to be traded on five stocks. Despite the rapid acceptance of puts and the rising interest in options, the SEC imposed a moratorium halting the listing of additional options. Nevertheless, annual volume at the CBOE reached 35.4 million in 1979.
Starting in 1975, a number of other exchanges began trading listed options. This group included the American Stock Exchange (AMEX), the Pacific Stock Exchange (PSE), and what is now known as the Philadelphia Stock Exchange (PHE). The most recent players to enter the game are the International Securities Exchange (ISE), Boston Options Exchange (BOX), and Archipelago, now NYSE Arca. Although the ISE only trades options on a limited number of stocks, the list is literally growing every day. Today, options on all sorts of financial instruments are also traded at the Chicago Mercantile Exchange, the CBOT, and other exchanges.