Sidebar: Futures and options
Option markets were a part of futures almost from the beginning. The options market grew out of the futures market and the innovative leadership from the Chicago Board of Trade and O’Connor brothers.
Futures were created for producers and consumers of commodities to transfer risk. Options are a more precise tool to transfer risk. They were first launched on equities in the smoking room of the CBOT, and the Chicago Board Options Exchange (CBOE) spun off as the leadership of the CBOT did not want the Securities and Exchange Commission (SEC)—which necessarily would have oversight over options on securities—to be too involved in their business.
The value of options soon proved themselves as competitors to CBOE were formed and continue to be formed. Futures markets would soon list options on futures, which today makes up a significant part of exchange volume.
When it became necessary to separate CBOE from the CBOT it created one of the most difficult legal battles in the industry. The CBOT needed to split off CBOE for regulatory reasons, but as its creator, recognized CBOE as a valuable business in its own right. The solution was to give each full member of the CBOT an exercise right on the CBOE. Many members would trade on both exchanges, and many CBOT members made their living trading options on CBOE. As the trading world evolved and exchanges began to demutualize, the question of what happens with those exercise rights spawned numerous battles and lawsuits between the two exchanges that sat across the street from each other. The battle delayed CBOE’s initial public offering and was not fully resolved until the CME Group was formed with the CME’s purchase of the CBOT.
Options coverage and options strategy articles—both equity options and options on futures—have been a part of Futures from the beginning. In fact, if the timing of our name change had been different, one could see “options” being used in our title.