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Option Exchange

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An option exchange is an exchange that trades option contracts. The option exchange may also trade other securities, such as stocks and futures. The option exchange has complete discretion to set all option contract specifications, such as contract size, exercise date, and strike price. The option exchange may also set rules for the maximum allowable open interest. The option exchange must determine important specifics of the settlement process. For example, early exercise of an American style option by one option holder out of many requires that one option writer be selected by the option exchange to deliver the underlying asset. An option exchange may or may not have fully electronic trading. An example of an options exchange is the Chicago Board Options Exchange, or CBOE.

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