Cyberproblem

A Virtual Visit through the Chicago Board of Options Exchange

An option is a contract which gives its holder the right to buy (or sell) an asset at some predetermined price within a specified period of time. The major advantage of options is their versatility, as they can serve a number of different investor needs. Options can be used to protect stock holdings from a decline in market prices, to increase income against a current stock holding, to position an investor for a big market move, or to benefit from a stock price rise without incurring the cost of buying the stock itself. Ultimately, an option's most powerful tool, if used correctly, is to hedge risk borne by the investor.

This cyberproblem looks at the Chicago Board of Options Exchange (CBOE), where options trading occurs. The CBOE home page can be found at http://www.cboe.com. From the front page, select the "About CBOE" link from the menu running across the top of the screen. When inside, click the "Virtual Visit" option along the top of the screen.

1. On what date did exchange-traded options begin on the Chicago Board of Options Exchange? How many stocks were options offered on, and what kind of options were they?
   
   
2. Approximately how many options contracts were negotiated daily at the CBOE in 1999?
   
   
3. The CBOE claims that its telecommunications network is to be considered one of the technological wonders of the modern world. What are some of the logistical characteristics of the CBOE's telecommunications network that may qualify that statement?
   
   
4. Describe the manner in which a typical customer order is executed.
   
   
5. Describe the manner by which clerks communicate with floor brokers in the trading crowds.
   
   
6. What are the two types of members that can be found in an equity trading crowd, and what are their roles?
   
   
7. Approximately, how many trading crowds are there on the floor of the CBOE? How many options on equity issues are being traded? How many options on indexes?
   
   
8. Identify and describe the most actively traded options index in the world.