Exchange-Traded Option

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Exchange-Traded Option

An option contract that is traded on an exchange. An exchange-traded option is subject to all of the exchange's applicable regulations; this reduces uncertainly for the investor because exchange-traded options are standardized contracts. They contrast with over-the-counter options, the provisions of which may be customized.
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According to a statement from CBOE, the Vest platform allows advisors to use managed accounts with the desired level of risk for new or existing stock/ETF positions, then structures a "Protective Strategy," using a portfolio of exchange-traded options to match the investor's personalized investment objectives and desired protection as closely as possible.
The Reserve Bank of India (RBI) barred banks from proprietary trading in currency futures and exchange-traded options, it said on its website on Monday.
According to LCM Research, adding exchange-traded options and futures contracts to the latter figure represents no less than seven billion barrels of oil.
The formal organization of options contracts has brought tremendous popularity to the options markets because of the fact that all exchange-traded options contracts are standardized (i.e., all based upon the same terms).
Most exchange-traded options contracts expire on the Saturday after the third Friday of each month (although some types of options only have contracts that expire every three months).
To address the unique features of ESOs that differentiate them from exchange-traded options (see chart on page 55), AG/E has developed two new valuation models.
The authors use data on exchange-traded options to construct implied lookback straddle returns, and show' that they have considerable power to explain the reported returns of CTAs.
Several important differences distinguish LEPOs from standard exchange-traded options, and these differences have important implications for the pricing of this new security.
Since the embedded call option is not exchange-traded, the call option component of the SIGNs would not be taxed on an annual basis under the mark-to-market rules that apply to exchange-traded options. Thus the tax treatment of the returns is potentially more favorable to investors under the contingent-interest-note interpretation of SIGNs than under the zero-coupon-note-with-call-option financial interpretation and may be much more favorable than the alternative of buying a Treasury strip and exchange-traded S&P 500 call options.
In making this decision CPAs should understand that employee share options differ from the usual exchange-traded options most models were developed to value in a number of ways.
This includes a review of any internal valuation models, sample comparison of valuations produced by these models with independent outside valuation sources (quoted prices for exchange-traded options and futures, dealer quotes for currency and interest rate swaps and pricing services and possibly valuation specialists for unique and highly structured derivatives), testing of inputs (such as yield curves for currency and interest rate swaps and volatilities for options) to the internal models against current market data and testing of the consistency of the values ascribed by the company's models by the use of selected test transactions or by reference to actual sale or purchase transactions.