Options Trader Knowledge

The Chicago Board Options Exchange (CBOE) is one of the worlds larget options exchanges. It was formed in 1973 by the Chicago Board of Trade (CBOT).

It served as the first formal and standardised place for the trade of stock options in a fair and orderly manner, and on the 26th of April 1973, 911 contracts were traded upon 16 underlying stocks.

Even though the CBOE was the first orderly options exchange, it was not until 1975 when the Black-Scholes method for pricing options and computerized price reporting was introduced that options became more widespread.

However, things have now come a long way in the last 20 years. The CBOE boasts contract volume at an all-time record of 468,249,301 contracts (up 30% over the previous year), and the notional value of this volume was more than $12 trillion!

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Let’s look at the basic facts about options trading before we go any further. Like any human endeavor, options trading is best described in very careful language so that there’s no confusion about our meaning. First, let’s take a look at exactly what an “option” is. An option refers to just that, the option to purchase certain stocks or certain commodity items by a certain date. This means you do not gain controlling interest in the stock or commodity until that date. For this reason, options can, and often do, expire worthless.

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By Jason Ng - Founder, Masters ‘O’ Equity

INTRODUCTION

Having been trading stocks and options in the capital marketsprofessionally over the years, I have seen many ups and downs.

I have seen paupers become millionaires overnight…

And

I have seen millionaires become paupers overnight…

One story told to me by my mentor is still etched in my mind:

“Once, there were two Wall Street stock market multi-millionaires. Both were extremely successful and decided to share their insights with others by selling their stock market forecasts in newsletters. Each charged US$10,000 for their opinions. One trader was so curious to know their views that he spent all of his $20,000 savings to buy both their opinions. His friends were naturally excited about what the two masters had to say about the stock market’s direction. When they asked their friend, he was fuming mad. Confused, they asked their friend about his anger. He said, ‘One said BULLISH and the other said BEARISH!’”

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Welcome to Options Trading Knowledge.

Here we aim to increase your knowledge of all things to do with trading Stock Options - including the Options Exchange Markets, Options Trading, Options Trading Strategies and Options Brokers.

There are many different aspects to how the Options Markets works and hopefuly you will be able to strengthen your trading plan here.