Chicago Board Options Exchange;

              The Chicago Board Options Exchange
To the uninitiated, the trading floor of the Chicago Board Options Exchange is a chaotic scene. Large groups of traders crowd around oval-shaped trad-ing posts, jostling each other and shouting out bids. Their yells blend into the overall din of the high-ceilinged room. Messengers, aptly called run-ners, rush through the crowds, carrying buy and sell orders. Paper, in some areas an inch deep, litters the floor. In-deed, veteran traders can estimate the day's activity by the amount of paper strewn about. Ticker-tape machines spew long paper ribbons in the member-firm booths, cramped areas with telephones, video screens and other communications equipment on tall desks. Traders, runners and those stationed at the booths wear loose jackets ranging in color from red, yel-low, pink and light blue to mint green, olive drab, tan and dark blue. The dif-ferent colors denote the many broker-age firms and independent traders who deal on the Exchange.
At first glance, it is hard to imagine how anything can be accomplished on the noisy trading floor. But beneath its hectic exterior, options trading is a
A tightly-packed group of traders stationed before one of the trading posts of the Chicago Board Options Exchange watches closely the posted securities options quotes. On the crowded floor, traders jostle each other as they shout out bids for the ninety-five separate securities options classes listed on the Options Exchange.
well-coordinated, smoothly run opera-tion. The shouts and the fast-paced action reflect the fact that trading in options is one of the most popular in-vestment strategies around. All options traded on the CBOE are based on stock issues listed on the New York Stock Exchange.
When it first opened its doors seven years ago, the Chicago Board Options Exchange began a revolution in the na-tion's securities industry. A market was created where no formal market had existed before. Soon, trading in this new investment vehicle took hold, with investor and broker wanting a piece of the action. Activity in the new market soared. The CBOE grew from the smallest securities exchange in the country to the second largest in less than three years — an accomplish-ment without parallel in the securities industry.
However; the phenomenal growth of the Chicago Board Options Exchange, now the acknowledged leading mar-ketplace for the buying and selling of options, has not been without growing pains — or controversy, especially since the Securities and Exchange Commission, the governmental regu-lator of the industry, imposed a moratorium on the expansion of listed options in October 1977. The moratorium was ended late in March of this year.
The CBOE has overcome the opera-tional problems caused by heavy vol-
ume which it experienced a few years ago. A new computerized system, for example, has been developed to handle buy and sell orders more effi-ciently. Other operational procedures have been streamlined as well. And with the recent lifting of the SEC's moratorium, CBOE officials are looking to the future with renewed optimism.
The Chicago Board Options Exchange, which has been a Deloitte Haskins & Sells client since it first opened, was formed by the Board of Trade of the City of Chicago, a commodity futures exchange and a long-standing DH&S client. An option contract is similar to a commodity futures agreement. In both instances, a right based on the future value of the respective underlying issue or commodity is traded. In the case of an option, the underlying issue is a stock listed on the New York Stock Exchange; with a commodities future, the underlying commodity can be any-thing from soybeans to cattle to gold, or a financial instrument such as a Government National Mortgage As-sociation (GNMA) security.
But the similarity ends there. An option is a unique investment form, with its own sets of rules, strategies, nuances and complexities. Defined simply, an option is a contract permitting the owner to buy or sell a security at a specified price within a specific length of time. There are two kinds of options, "calls" and "puts." A "call" option gives the buyer the right to purchase a par-
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