by Jared Levy on June 14, 2010
The Chicago Board Options Exchange, which is right across the street from where I’m sitting as I write this, is bringing their shares to market tomorrow, 11.7 million of them initially under the ticker CBOE. They are looking to raise at least $339 million with Goldman Sachs as the lead underwriter; shares are anticipated to be priced around $27-$30.
The CBOE, which spawned from the Chicago Board of Trade (now the CME group) back in 1973, was the first options exchange. Prior to that, options traded over the counter and pricing options was a bit like triangulating Newton’s theory with an abacus. That same year, two men changed the future of options forever. The Black-Scholes model was created by Fischer Black and Myron Scholes and conveyed in their 1973 paper, “The Pricing of Options and Corporate Liabilities” – Robert C. Merton later expanded on the model. This model and the creation of the CBOE were both major steps in the standardization of options pricing and the beginning of the options exchange system. 1973 was a slow year for options, with just 16 stocks listed and only call options trading on them.
Fast-forward 37 years and now there are eight different equity options exchanges. Options now trade on Futures, the foreign exchange market (FX), and other products as well. If you take a snapshot of a day’s volume, the CBOE manages the lion’s share of index options volume and the equity options market share is a bit more evenly distributed among several exchanges. Overall, the CBOE handles roughly 30% of the U.S. market share of equity and index options volume. The data below is courtesy of the Options Clearing Corporation (OCC).