Exchange-Traded Option

AAA

DEFINITION of 'Exchange-Traded Option'

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 'Exchange-Traded Option'

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. Chicago Board Options Exchange ...

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

    An agency or separate corporation of a futures exchange responsible ...
  3. Exchange

    A marketplace in which securities, commodities, derivatives and ...
  4. Options Clearing Corporation - ...

    An organization that acts as both the issuer and guarantor for ...
  5. Underlying

    1. In derivatives, the security that must be delivered when a ...
  6. Option

    A financial derivative that represents a contract sold by one ...
Related Articles
  1. Dividends, Interest Rates And Their ...
    Options & Futures

    Dividends, Interest Rates And Their ...

  2. Can an option have a negative strike ...
    Options & Futures

    Can an option have a negative strike ...

  3. Applying Binary Options To Equity Markets
    Options & Futures

    Applying Binary Options To Equity Markets

  4. ETF Options Hedge Risk of ETF Trades
    Mutual Funds & ETFs

    ETF Options Hedge Risk of ETF Trades

Hot Definitions
  1. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  2. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  3. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  4. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  5. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
  6. Earnings Multiplier

    An adjustment made to a company's P/E ratio that takes into account current interest rates. The earnings multiplier is used ...
Trading Center