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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: December 2, 2013
What are the listing criteria for an underlying security to be options eligible? And, do these listing criteria have anything to do with why there are stocks on certain companies and not on others?
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.