Types of Options
Options have been there for more than a century. Options on equity stocks were available on the London Stock Exchange more than a century ago. Chicago Board Options Exchange (CBOE) was the first formalized options market that offered exchange-traded options on US listed equity stocks. It was established in 1973. Since then, several stock exchanges, such as Australia Stock Exchange, emulated the CBOE market and offered exchange-traded options market on equity stocks. There exists a great diversity of exchange-traded options markets on equities, currencies, debt instruments, stock index instruments.
There are two types of options:
- Exchange-traded options
- Over-the-counter options
The differences between these two types of options are listed in the table below:
| Exchange-traded options (ET options) | Over-the-counter options (OTC Options) |
| Options that are originated and traded on a formalized exchanged | OTC options are not traded at a centralized market place or through a formalized trading system. |
| Most commonly traded ET options are equity options and futures options | OTC markets exist in commodities, equities, stock indices, debt instruments and foreign exchange. |
| ET transactions are settled through a clearing house, associated with the exchange. | There is no clearing house. |
| ET options are floor traded on a physical floor or traded on a screen-based trading system. | OTC options are traded through face-to-face meetings or over the telephone. |
| ET options are highly standardized as to the type and maturity of the underlying instrument. | OTC options are tailor-made option agreements between two or more parties. The contracts are not standardized. |
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Filed under All About Options, Option Basics by on Apr 16th, 2010. 
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