Legal Definitions - CBOE

The CBOE, which stands for the Chicago Board Options Exchange, is a major financial marketplace where investors buy and sell standardized options contracts. It is the largest options exchange in the United States and plays a crucial role in the global derivatives market by providing a platform for trading various types of options, including those on stocks, exchange-traded funds (ETFs), and market indexes.

• Imagine an individual investor named Sarah who believes a particular technology company's stock price will rise significantly in the coming months. Instead of buying the stock outright, she decides to purchase call options, which give her the right, but not the obligation, to buy the stock at a specific price by a certain date. When Sarah places her order through her brokerage, that order is likely routed to an exchange like the CBOE for execution, as it is a primary venue for trading such options contracts.

• Financial analysts often refer to the VIX Index, sometimes called the "fear gauge," to understand market volatility expectations. The VIX Index is a real-time market index that represents the market's expectation of 30-day forward-looking volatility. This index is calculated using a weighted average of prices of various options on the S&P 500 Index, which are primarily traded on the CBOE. Therefore, the CBOE's trading activity directly contributes to a key indicator used by investors and economists worldwide.

• A large brokerage firm that offers options trading services to its clients must ensure its trading infrastructure is robust and directly connected to major options exchanges. For instance, to provide seamless and rapid execution of client orders for equity options, the brokerage's electronic trading systems must be integrated with the CBOE's trading platform. This integration allows the brokerage to efficiently send client orders to the CBOE and receive real-time price quotes and execution confirmations.