Exchanges

Stock Options are traded on 6 exchanges:
1. Chicago Board of Options Exchange (CBOE)
2. American Stock Exchange (AMEX)
3. International Securities Exchange (ISE)
4. Pacific Exchanges (P Coast)
5. Philadelphia Stock Exchange (The Philly)
6. Boston Options Exchange (BOX)

To trade options, we have to have our brokerage accounts. This is because individual traders like us can only buy or sell stock options via their brokerage firms.

The brokerage will then trade our stock options in the respective exchanges.

Most of these brokerage firms will comb these 6 exchanges to find us the best prices for our buy or sell orders.

Inside these exchanges, there are people called market makers who trade stock options on the exchange floor. These market makers are essential to the exchange system. They provide liquidity by providing two-sided markets. They also make money off the bid-ask spread.

This is how our buy or sell instructions are carried out:
1. We place an order with our broker
2. Our Broker places the order on the exchange
3. The Exchange’s market maker executes  the order
4. The order is filled
5. The Filled order is routed to our broker
6. Our broker’s trading platform will show us that our order has been filled.

Most of the brokerage systems and the exchange systems have been computerized. This means that that our buy or sell orders can be readily automated. In addition, order executions are done very fast. Depending on our trading orders, our order can take be executed within 2 seconds or less if there is a market for our buy/sell orders.

Next: Expiration ...