Cboe Global Markets, Inc. · CBOE:CBOE

Cboe Global Markets — Chicago Board Options Exchange (CBOE) — Investor Presentation (2004)

29 slides from Cboe Global Markets's investor presentation, 2004

  1. Slide 1: Stock Indexes and Risk Management with Listed Options

    Stock Indexes and Risk Management with Listed Options ®

  2. Slide 2: The CBOE

    The CBOE 1973 Listed equity call options 1977 Put options 1983 S&P 100 ® (OEX ®) options 1990 Long-term Equity AnticiPation ® Securities (LEAPS ®) 1993 Index FLEX 1996 Equity FLEX® 2002 BXMSM Benchmark Index 2004 VIX® and Variance Futures

  3. Slide 3: CBOE Products Include

    CBOE Products Include • S&P 500® (SPX®) • International Indices • S&P 100® (OEX®) • Sectors Indices • Dow JonesSM • FLEX® • Nasdaq-100 ® (NDX, • LEAPS ® MNX, QQQ) • Interest Rates • Russell 2000 (RUT) • Equity Options • VIX® and Variance • Structured Products Futures • Exchange-traded Funds

  4. Slide 4: Features of the CBOE

    Features of the CBOE • Trades guaranteed by Triple-A rated clearing corporation • Fungibility • Price and quote transparency • Daily mark-to-market • Liquidity • Competitive auction markets • SEC-regulated marketplace

  5. Slide 5: Options Components

    Options Components • Type: Call or Put • Underlying: Equity, SPX, OEX, DJX • Strike or exercise price • Expiration Date: Month & Year • Premium or Price Paid • Multiplier: $100 • Style: American or European

  6. Slide 6: Users of Options Include

    Users of Options Include  Corporations  High-net-worth Investors  Hedge Funds  Mutual Funds  Pension Funds 6

  7. Slide 7: S&P 500 (SPX) Options Volume

    S&P 500 (SPX) Options Volume 114% Growth in Volume Since Year 2000 186,089 145,852 118,808 97,868 87,286 2000 2001 2002 2003 J an- Aug04 Average Daily Volume 7

  8. Slide 8: Options Strategies

    Options Strategies Long Call -- Right to Buy Long Put -- Right to Sell Profit Profit Loss Loss Short Call -- Obligation to Sell if assigned Short Put -- Obligation to Buy if assigned. Profit Profit Loss Loss 8

  9. Slide 9: Strategies for Protection or Income

    Strategies for Protection or Income  Sell stocks  Buy index put  Short index options futures  Collar with index  Covered call options (buy puts writing (stocks + for protection and short calls) sell calls for income) 9

  10. Slide 10: CBOE S&P 500 BuyWrite Index (BXM)

    CBOE S&P 500 BuyWrite Index (BXM) Options portfolio managers said they needed a benchmark for performance. Prof. Robert Whaley of Duke U. was commissioned by the CBOE. Passive buy-write strategy calculated for period from June 1, 1988 (when S&P began reporting daily dividends). 10

  11. Slide 11: CBOE S&P 500 BuyWrite Index (BXM) Methodology

    CBOE S&P 500 BuyWrite Index (BXM) Methodology  Buy and hold S&P 500 stock portfolio  Write (sell) S&P 500 (SPX) call option 12 times a year  Index option has exercise price just above prevailing index level (i.e., slightly out-of-the money)  Index option is held until expiration and cash-settled

  12. Slide 12: BXM Analysis

    BXM Analysis  Case study on BXM in 2004 by Ibbotson Associates  www.cboe.com/bxm 12

  13. Slide 13: A Chronology of Key Volatility-based Products

    A Chronology of Key Volatility–based Products 1973 Black-Scholes Options Pricing Model 1993 VIX (based on S&P 100) – Prof. Whaley 1998 Equity Index Volatility & Variance Swaps 1998 VOLAX Futures in Germany 2001 VXN Index (based on Nasdaq-100 options) 2003 New VIX (based on S&P 500 options) 2004 VIX

  14. Slide 14: CBOE Volatility Index (VIX)

    CBOE Volatility Index (VIX )  Since 1993 a premier barometer of investor sentiment and market volatility  In Sept. 2003 new VIX methodology  VIX futures introduced in March 2004, with settlement date on the 3rd Wednesday of each month  www.cboe.com/vix 14

  15. Slide 15: CBOE Futures Exchange

    CBOE Futures Exchange  Launch date: March 26, 2004 with VIX futures  Separate, wholly-owned subsidiary of CBOE  Diversifies CBOE’s product line  Pure screen-based exchange utilizing CBOEdirect match engine  DPM market model  Trades cleared by OCC 15

  16. Slide 16: VIX Futures

    VIX Futures  VIX futures trade from 8:30 a.m. to 3:15 p.m. (CST)  Ticker symbols:  CBOE Volatility Index – VIX  Jumbo CBOE Volatility Index – VXB  VIX Futures - VX  Settlement date is Wednesday prior to the third Friday of the month 16

  17. Slide 17: VIX Futures Possible Uses

    VIX Futures Possible Uses Include --  To take advantage of a market view on the direction of near- term volatility,  To hedge volatility risk with short VIX futures or long protective VIX puts,  To manage risks associated with the growing markets for volatility and variance swaps,  To take advan

  18. Slide 18: Stock Indexes -- Monthly Price Charts

    Stock Indexes -- Monthly Price Charts (Through August 2004)

  19. Slide 19: Dow (DJX) Prices

    Dow (DJX) Prices The DJX is quoted at 1/100 of the DJIA 140 120 Month-end Prices 100 80 60 40 20 0 30-Sep-97 30-Sep-98 30-Sep-99 30-Sep-00 30-Sep-01 30-Sep-02 30-Sep-03 Source: Bloomberg 19

  20. Slide 20: S&P (SPX) Month-end prices

    S&P 500 (SPX ) ® TM 1600 1200 Month-end prices 800 400 0 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan. 1995 - Aug. 2004 Source: Bloomberg 20

  21. Slide 21: S&P (OEX) Month-end prices

    S&P 100 (OEX ) ® ® 1000 800 Month-end prices 600 400 200 0 Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- 95 96 97 98 99 00 01 02 03 04 Source: Bloomberg 21

  22. Slide 22: Russell 2000 (RUT) Month-end prices

    Russell 2000 (RUT) ® 800 600 Month-end prices 400 200 0 Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- 95 96 97 98 99 00 01 02 03 04 Source: Bloomberg 22

  23. Slide 23: Nasdaq (NDX) Month-end prices

    Nasdaq 100 (NDX) ® 5000 4000 Month-end prices 3000 2000 1000 0 Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- 95 96 97 98 99 00 01 02 03 04 Jan. 1995 - Aug. 2004 Source: Bloomberg 23

  24. Slide 24: Bibliography on Options and on Buy-Write Strategies

    Bibliography on Options and on Buy-Write Strategies Black, Fischer and Scholes, Myron, "The Pricing of Options and Corporate Liabilities", Journal of Political Economy, (1973) 81:637-654. Blake, Rich. “Investors Are Dusting Off an Old Strategy, Options Overlay; When It Works, It Offers Both Yield En

  25. Slide 25: Educational Opportunities

    Educational Opportunities • Options Institute classes • Index Workbench CD-ROM • Risk Mgt. Conference www.cboe.com/rmc • Index Options www.cboe.com/index • BXM Index www.cboe.com/bxm • VIX Index www.cboe.com/vix 25

  26. Slide 26: Appendix - Definitions

    Appendix - Definitions Call - An option contract that gives the holder the right to buy the underlying security at a specified price for a certain, fixed period of time. Delta - A measure of the rate of change in an option's theoretical value for a one-unit change in the price of the underlying stoc

  27. Slide 27: Definitions (continued)

    Open interest - The number of outstanding option contracts in the exchange market or in a particular class or series. Premium - The price of an option contract, determined in the competitive marketplace, which the buyer of the option pays to the option writer for the rights conveyed by the option co

  28. Slide 28: Options involve risk and are not suitable for all investors

    Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options, http://www.cboe.com/Resources/Intro.asp which is available from your broker, by calling 1-888- OPTIONS, or from The Op

  29. Slide 29: MSCI and related service mark notices

    MSCI, EAFE, iShares, BGI and the MSCI index names are service marks of Morgan Stanley Capital International Inc. ("MSCI"), its licensors or their affiliates (the "MSCI Parties") and have been licensed for use by the Chicago Board Options Exchange. Option contracts on any exchange-traded fund based o

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