Exchange-Traded Option

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DEFINITION

An option traded on a regulated exchange where the terms of each option are standardized by the exchange. The contract is standardized so that underlying asset, quantity, expiration date and strike price are known in advance. Over-the-counter options are not traded on exchanges and allow for the customization of the terms of the option contract.

Exchange-traded options are also known as "listed options".

INVESTOPEDIA EXPLAINS

The benefits to exchange-traded options are the liquidity of the options, standardized contracts, quick access to prices and the use of clearing houses by exchanges. The use of clearing houses guarantees the option contract will be fulfilled, while with over-the-counter options the ability to exercise the contract is dependent on the ability of the other party to meet the obligation.


RELATED TERMS
  1. Listed Option

    An option that is sold on a registered exchange, such as the Chicago Board Options ...
  2. Allocation Notice

    An official notification from an options clearing firm to the writer of an option ...
  3. Chicago Board Options Exchange ...

    Founded in 1973, the CBOE is an exchange that focuses on options contracts for ...
  4. Clearing House

    An agency or separate corporation of a futures exchange responsible for settling ...
  5. Exchange

    A marketplace in which securities, commodities, derivatives and other financial ...
  6. Options Clearing Corporation - ...

    An organization that acts as both the issuer and guarantor for option and futures ...
  7. Underlying

    1. In derivatives, the security that must be delivered when a derivative contract, ...
  8. Option

    A financial derivative that represents a contract sold by one party (option ...
  9. Over-The-Counter - OTC

    A security traded in some context other than on a formal exchange such as the ...
  10. Clearing Corporation

    An organization associated with an exchange to handle the confirmation, settlement ...
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