Individual investors who wish to buy or sell options
place orders through their brokerage firms. The firm sends the
order to be filled through an options exchange that trades that
options class.
Listed options all trade on regulated exchanges,
which means that all trading must adhere to rules designed to
make it fair for all investors. The Chicago Board Options Exchange,
or CBOE, is the oldest options exchange. Options are also traded
on the American Stock Exchange (AMEX), the International Securities
Exchange (ISE), the Pacific Exchange (PCX), and the Philadelphia
Stock Exchange (PHLX).
Electronic trading
In the early years of options trading, buying and
selling took place through
open
outcry auctions. Buyers and sellers negotiated directly
with each other, using shouts and hand signals to determine prices.
Today, however, many exchanges operate a hybrid of open outcry
and electronic trading, and nearly all options transactions take
place electronically.
Traders acting as
specialists
lead the open outcry auctions for each options class, and are
in charge of maintaining a fair and orderly market, which means
that contracts are easily obtainable, and every investor has access
to the best possible market price.
When transactions are executed electronically,
auction prices are tracked and listed on computers, and orders
are usually filled within a matter of seconds.
