Listing of new binary options as exchange-traded vehicles expected to attract more brokers into largely institutional marketplace.
On Tuesday, the Chicago Board Options Exchange (CBOE) listed binary put options on the S&P 500 Index (option ticker: BSZ) and the CBOE Volatility Index (option ticker: BVZ).
Binary call options began trading on the S&P 500 and VIX in July.
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Activity has ticked up in early volumes, reaching as high as 10,000 to 12,000 contracts on some days, and averaging 2,500 contracts daily during September. Most of that early action has been in the S&P 500 binary options.
Early adoption of the binary options has primarily been on the institutional side, according to the CBOE, but the CBOE expects that the exchange-traded nature of the binary options may start to bring in more brokerage business.
Binary options are exchange-traded, and this means the CBOE binary options include clearing guarantees unavailable in over-the-counter markets, and can be traded in a regular brokerage account.
Some market watchers have referred to binary options as "options on training wheels." Furthermore, traders say that the relatively low volumes in the binary options and relatively high spreads make them less attractive to large institutions.
The payout structure on the binary call and put options allows investors to know an exact amount they will receive if the options are held to expiration. Call options pay $100 if the underlying index settles at or above the preset strike price at expiration, or nothing if the index settles below the strike price.
Put options pay $100 if the underlying index settles below the preset strike at expiration, or nothing at all if the index settles at or above the strike price.
The designated market maker selected for the binary options on BSZ is the Chicago Trading Company, while Group One Trading serves as designated market maker on BVZ.