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Warrior Trading Blog

CBOE Definition: Day Trading Terminology


The Chicago Board Options Exchange, or CBOE, is the world’s largest exchange for the trading of options contracts. The Chicago Board Options Exchange acts as a clearing house for options on a very large number of companies, indices and exchange-traded funds (ETFs).

The CBOE is also the owner of the CFE, which pioneered the volatility measures that have become an integral part of contemporary markets, such as the VIX, as well as derivatives based on those volatility measures.

Recently the Chicago Board Options Exchange also pioneered Bitcoin futures, which became an instant success and are seen as an important part of the normalization of cryptocurrency trading.

The Importance of the Chicago Board Options Exchange

Not only has the CBOE maintained a dominant position in the global market for derivatives throughout its 40 year lifespan, it has also been at the forefront of the normalization of options trading and the innovation of options and their regulation.

Most innovations in options are developed by the CBOE. The CBOE offers by far the broadest range of options based on equities, equity indices and equity ETFs, as well as a variety of other underlying securities.

CBOE and Volatility

Before the development of the ubiquitous VIX measure of volatility, there were a variety of attempts at measuring the volatility of equity markets. In the 1990s the CBOE developed the VIX measure, which has become the standard measure of volatility used by the vast majority of market participants.

The CBOE has since developed a large number of options and futures based on the volatility index, mostly varying according to expiration date.

More importantly, the VIX has become the basis for a large number of alternate derivatives and ETFs that have come to shape how contemporary markets operate. What was originally intended as a simple measure to inform investment decisions has become a vehicle for highly complex and sophisticated trading strategies based on both hedging against volatility and seeking out volatility itself as an investment vehicle.

From the standard volatility measure of the S&P 500 to measures of the volatility of volatility and inverse volatility ETFs, the influence of the CBOE’s pioneering efforts in volatility measures and related products cannot be overstated.

CBOE and Bitcoin Futures

In keeping with its history of market innovations, CBOE was the first exchange to offer futures contracts for Bitcoin. This effort was seen as a major push in the normalization of cryptocurrency trading, and a critical mechanism for allowing the short selling of Bitcoin.

The Bitcoin futures contracts proved extremely popular, and will likely form the basis of future derivatives contracts based on Bitcoin and other major cryptocurrencies.

Final Thoughts

The Chicago Board Options Exchange is both the dominant exchange for options on equities, equity indices and equity ETFs and a pioneer in the development of options, volatility measures and futures. Traders should be familiar with what the CBOE is and the influence that they have on the contemporary markets. It is wise to track current CBOE innovations, as they are likely to shape the marketplace of tomorrow, and influence the landscape that every trader faces.