CBOE

The securities and commodities exchanges are the exchanges where securities, options, and futures contracts are traded by members for their own accounts and for the accounts of customers. There are several large securities/commodities exchanges in the US: American Stock Exchange, Chicago Board of Trade, Chicago Board Options Exchange, Kansas City Board of Trade, Philadelphia Stock Exchange etc.

The CBOE (Chicago Board Options Exchange) defines itself as the first national exchange to trade listed stock options. In 1973 the CBOE realized the concept of standardized, listed stock options to be traded on a centralized and regulated marketplace. One of the kind of options offered at CBOE are index options, which are based on indices – the compilations of prices of several common entities into one number. Usually, index options are cash-based.

This essay is aimed at analyzing the reasons why options premium are rich in time value. Option premium is the term used to denote the per-share amount that a buyer pays for an option - for the right to buy or sell a security at a specified price in the future.

If there is an option premium which is extremely rich in time value, there might appear an idea to buy the shares quickly and sell an appropriate call. However, the attractive option might have high volatility, which means that despite the high premium at the call the risks associated with owning the stock are rather high than the risks associated with less attractive but more stable shares. Concerning the options with rich time value, it is worth to notice that the suggested profit on the option may be exceeded by loss at the stock purchase.