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There are four US exchanges where options are traded. Major among them is the Chicago Board Options Exchange (CBOE) which was created in 1973 by the Chicago Board Of Trade (CBOT). CBOE has the distinction of creating standardized options used in the options market today. It also handles over 50% of all options as well as over 90% of index options volumes. Other US exchanges are the American Stock Exchange (now part of NASDAQ), Pacific Stock Exchange, and Philadelphia Stock Exchange. Just like traditional stock exchanges, options exchanges use the auction format in which orders by buyers and sellers are sent to the exchange floor for execution and prices are set based on supply and demand. The options exchanges operate within the same hours of stock exchanges (9:30 a.m.-4:00 p.m. EST). Stock options do not have after-hours trading as of yet but as after-hours trading in stocks gains popularity there certainly will be an impetus to introduce after-hours trading for options as well.

As with stock exchanges, options exchanges have their own regulatory arms which monitor and control the trading activity. The Security and Exchange Commission (SEC) also exercises its legal mandate of monitoring all options exchanges at the federal level. Monitoring and controlling options trading is just as important as doing so with stocks. Options are a hit with many involved in improper insider trading and other illegal activities, as options seem less scrutinized than stocks. Not true. Many individuals convicted of securities crimes have been captured as a result of their suspicious options trading activities.

Options Specifications
Technically speaking, most options are standardized options. Standardized options refer to those class of options that are traded in an organized exchange and have standardized terms such as: …