System and method for trading packaged collar options on an exchange

• US 8,121,934 B2
• Filed: 06/09/2009
• Issued: 02/21/2012
• Est. Priority Date: 05/04/2005
• Status: Active Grant

• Current Assignee: Cboe Exchange, Inc. (Cboe Global Markets, Inc.)
• Original Assignee: Chicago Board Options Exchange Incorporated (Cboe Global Markets, Inc.)
• Inventors: O'Callahan, Dennis M.
• Primary Examiner(s): Patel, Jagdish
• Application Number:
  US12/481,388
• Publication Number:
  US 20100010928A1
• Time in Patent Office: 987 Days
• Field of Search: 705/35, 705/37
• US Class Current: 705/37
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

A method of creating and trading packaged standard option collars on an exchange is provided, as well as a trading facility for trading such packaged standard option collars. Collars are created by identifying an underlying asset, a first leg of a collar is determined by determining the desired strike price for the first leg and selecting a standard option contract traded on the exchange having a strike price closest to the desired strike price. The second leg is determined by selecting another standard option, the opposite of the first leg, having an option price substantially offsetting the option price of the first leg. Once the legs of the collar have been selected the collar package may be listed on the exchange, and orders for the collars may be processed by matching orders for opposite positions in the collar.

Claims

1. A method trading collars on an options exchange, the method comprising:

in a processor of an exchange system;

identifying an underlying asset for which standard options contracts are traded on the exchange at an electronic trading system;

identifying one of an out-of-the-money standard call option or an out-of-the-money standard put option at the electronic trading system, the one of the out-of-the-money standard call option or the out-of-the-money standard put option having a first option price, wherein the out-of-the money standard call option and the out-of-the-money standard put option are based on the identified underlying asset;

identifying the other of the out-of-the-money standard call option or the out-of-the-money standard put option at the electronic trading system, the other of the out-of-the-money standard call option or the out-of-the-money standard put option having a second option price which substantially offsets said first option price;

listing, via a pricing data accumulation and dissemination module of the electronic trading system, the out-of-the-money standard call option and the out-of-the-money standard put option together as a package on the exchange; and

wherein both the out-of-the-money standard call option and the out-of-the-money standard put option are placed in a single order for the package.

2. The method of claim 1 wherein a first position in the package is received at the electronic trading system for a short position in the out-of-the-money standard call option and a long position in the out-of-the-money put option.

3. The method of claim 2 wherein a second position for the package is received at the electronic trading system for both a long position in the out-of-the-money call option and a short position in the out-of-the-money put option.

4. The method of claim 2 wherein a second position for the package is received at the electronic trading system for a long position in the out-of-the-money call option and a third position is received at the electronic trading system for a short position in the out-of-the-money call option.

5. The method of claim 1 wherein the electronic trading system is configured to permit trading of the out-of-the-money standard call option and the out-of-the-money standard put option comprising the listed package as separate standard options after receiving the first position in the package.

6. The method of claim 1 wherein the electronic trading system is configured to only permit the out-of-the-money standard call option and the out-of-the-money standard put option to be traded together as the package.

7. The method of claim 1 wherein the step of identifying one of an out-of-the-money standard call option or the out-of-the-money standard put option comprises the electronic trading system identifying a desired first leg strike price, wherein the desired first leg strike price is a desired percentage value above or below the market price of the underlying asset, and the identified one of the out-of-the-money standard call option or the out-of-the-money standard put option is a standard call option or a standard put option having a strike price nearest the desired first leg strike price.

8. The method of claim 1 wherein the first option price is defined as a midpoint between a best bid and best offer for the identified one of an out-of-the-money standard call option or the out-of-the-money standard put option, and the second option price is a midpoint between a best bid and best offer for the other of the out-of-the-money standard call option or the out-of-the-money standard put option.

9. The method of claim 1 further comprising the step of publishing bids and offers for the package of options, bids comprising a price investors are willing to pay to take both a short position in the identified out-of-the-money call option and a long position in the identified out-of-the-money put option, and offers comprise a price investors are willing to pay to take both a long position in the identified call option and a short position in the identified put option.