Opening and Closing Option Prices

Options begin trading as soon as an opening price for the underlying security may be determined. Options are opened for trading through a rotation that accepts orders and quotes for the series of calls that expire the soonest and have the lowest strike price. The rotation continues though all the near term series of call options and continues to the call options that expire further out. Once all of the calls are open, the rotation continues with the puts, starting with the puts with the highest strike price and the nearest expiration. The rotation in the puts continues through puts with lower strike prices and then to further out expirations.

Listed options also close on a rotation as soon as a closing price can be determined for the underlying security. A rotation can also be imposed during fast market conditions if the specialist or the order book official determines that the market is not operating in an orderly fashion. If a stock is halted, all option trading on that stock is also halted until the stock reopens.

Fast Markets and Trading Halts

A sudden influx of orders as a result of news can result in fast market conditions in the option markets. If two floor officials agree that the conditions are such that the integrity of the market is compromised as a result of the fast market conditions, the floor officials can:

  • Institute a trading rotation
  • Assign trading of options to another board broker
  • Allow board broker clerks to execute orders
  • Temporarily suspend the firm quote rule and Automatic executions 
  • Take other actions that may be required

If the integrity of the markets cannot be restored after taking these actions, trading may be halted in the options if two floor officials agree. Trading can be halted by the floor officials for up to two business days if the underlying stock is halted, has a delayed opening, or if other unusual circumstances exist. Only the board of directors at the CBOE can suspend the trading of options if the trading in the option has been halted for two days or if the underlying security has been suspended on its principal exchange or other unusual circumstances exist. The exchange during unusual market conditions may also suspend the use of stop and limit orders to help restore the market’s integrity.

TYPES OF ORDERS

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