Stock Options Market

Introduction

Options on futures contracts have added a new dimension to futures trading. Like futures, options provide price protection against adverse price moves. Present-day options trading on the floor of an exchange began in April 1973 when the Chicago Board of Trade created the Chicago Board Options Exchange (CBOE) for the sole purpose of trading options on a limited number of New York Stock Exchange-listed equities. Options on futures contracts were introduced at the CBOT in October 1982 when the exchange began trading Options on U.S. Treasury Bond futures.

There are many advantages to trading options over other types of investment vehicles. Options trading provides an investor with the flexibility to go long or short on specific market outcomes.

As an example, an options trader can take out a contact based on where they feel a stock will be trading in 3 months time. Think MSFT will be trading above $30 in June? There is a MSFT option for that.

Like using margin to buy stocks, options contracts can provide amazing leverage that is not available anywhere else. In the US, 1 option contract represents 100 of the underlying shares. Australia offers multiples of 1 000 times the underlying stock or commodity. Like forex, for a small amount of money, an options trader can secure for themselves a very large position.