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Welcome to your source for answers to questions about option concepts, strategies, and terminology. A new question and answer is published each week. To view the Ask the Institute archives, click the "Ask the Institute Archive" link below.
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This week's question:
DATE: September 26, 2014
How is it determined that a particular stock is ready for options to start trading on it? And, what factors lead up to options being listed on a particular stock?
To consider an underlying security options eligible, it must have a minimum of 7 million shares of float that are not restricted and freely tradable. For those unfamiliar with the term float, float is the shares held by the public that are available to be traded. The company on which the underlying security is issued must have a minimum of 2,000 distinct shareholders. In addition, the underlying security must list and trade over $3 for five consecutive business days and hold an annual average daily volume of 200,000 shares. So, penny stocks can’t be considered options eligible under this guideline. And, finally, an underlying security must trade on a U.S. national market such as the NYSE or NASDAQ.
If an underlying security meets these guidelines, it is deemed options eligible. Once this occurs, it then becomes a CBOE business decision warranting further reviews and approvals on whether to move forward and list the underlying. To learn more about the listing criteria for an underlying to become options eligible, view this segment of "Ask the Institute"