Currently options could be traded on four exchanges:
- AMEX – The American Stock Exchange
The American Stock Exchange trades put and call options on common stocks and broad market, industry sector and international indexes, exchange traded funds and HOLDRS. They have recently started to offer binary options.
- CBOE – The Chicago Board Exchange
Founded in 1973. The Chicago Board Options Exchange is the world’s largest options marketplace and the pioneer of listed options.
- PHLX – The Philadelphia Stock Exchange:
Founded in 1790, the PHLX was the first stock exchange to be established in the United States and trades approximately 2,000 stocks, 1,200 equity options, 16 index options and 8 currency options and 6 currency futures.
- PCST – The Pacific Coast Stock Exchange
Founded in 1862, the Pacific Exchange was the first exchange in the world to build and operate an electronic trading system. Trades more than 1,200 stocks options. It is one of the world’s leading derivatives markets.
The OOC (Options Clearing Corporation) has been founded in 1973 and keeps records of all outstanding contracts for all U.S. exchange listed equity options. Basically it knows who is long (owns) and who is short (sold without owning) every outstanding contract.
Placing an options order is the same as placing a stock order. You call your broker (if you use a live broker) and tell what you want to buy or sell how many contracts and you state the price (limit order) or you can place a market order (the best available price at the moment the order comes to the trading floor).
For the most brokers you have to meet certain criteria before they accept the order. You must have necessary funds to cover any margin requirements. First of all your broker will require you to open an margin account. Even if you are not going to borrow money from your broker you still have to do it.
- Initial Margin Requirements is the amount of money you must have on account with your broker at the time the order is placed. Initial margin funds must be deposited before any trade can be accepted.
- Maintenance Margin is a set minimum margin per outstanding contract that you must have on your account in order to hold a position.
After you met margin requirements your broker ill send you a several agreements where you find “Characteristics and Risk of Standardized Options” and “Understanding Stock Options” that are very useful to read especially if you only started to trade.
After your account is opened you can place an order with your broker.