Exchange Options
(i) Options which are offered
on an exchange, as opposed to over-the-counter
options granted by an individual bank or bullion dealer, which are tailored to
each client’s needs. Exchange Options offer a standard contract, which can be
traded on the exchange many times before it expires.
The most successful exchange option has been the one launched by COMEX in New York in October 1982. A COMEX gold option is actually on a gold futures contract; it provides the holder with the right to buy (call) or sell (put) a COMEX gold futures contract of 100 ounces at the exercise (strike) price on or before the expiration date. Contract months are the nearest four of the following contracts: February, April, June, August, October and December. Volume on COMEX, now a division of the New York Mercantile Exchange, has easily exceeded other options contracts launched on other United States’ exchanges.
The Bolsa de Mercadorias et Futuros in Sao Paulo, however, built up substantial volume in the early 1990s with its 250 gram option contract, launched in 1986 during a period of high physical disinvestment in Brazil, but turnover has declined since 1995.
Whilst exchange options are used by many professionals, they also attract speculators because of the high leverage.
(ii) An exotic option which allows the holder to exchange one underlying asset for another.