Have CBOE Seats Finally Hit Their Peak?

Have CBOE Seats Finally Hit Their Peak?


Have CBOE Seats Finally Hit Their Peak? - Part One

Up, Up & Away
Seats at the Chicago Board Options Exchange (CBOE) seem to be on a perennial upward climb these days. Hardly a week goes by when the exchange doesn't announce that another price record has been shattered. Record-setting prices have become such a regular occurrence that it's hard to believe this wasn't always the case.

The First Boom
If you flipped the calendar back to the late 1990s, you would find an exchange in a comparable position to today (at least when it comes to seat prices). The stock market was at the height of its irrational exuberance and everyone wanted to be a part of the options business. (In fact, many people consider the options boom of the 1980s and 1990s to be the unsung gold rush of the last century.)

While equity analysts were obsessing over microprocessors and memory chips, obscene fortunes were being made and lost in the CBOE's trading pits. The incredible demand to trade options translated into a remarkable run-up in seat prices. This bull market for seats culminated in February 1998 with a then-record price of $735,000.

Heading To Zero
Long before the tech boom went bust, the bloom began to fade from the CBOE’s rose. The impending rise of electronic trading, along with the dawn of multiple listing, combined for a lethal one-two punch to the CBOE's seat prices.

Although options volume remained strong after 1998, it was definitely an unsettling time to be a member of the CBOE. The ISE loomed like a leviathan on the horizon. When compared to electronic trading, traditional open outcry seemed slow, inefficient and costly. Why bother leasing, staffing and maintaining an expensive trading floor when a few servers and an IT team could accomplish the same task?

With its market share eroding, CBOE members began making markets on how long the exchange would survive. Needless to say, bids greater than one year were difficult to find. It was during this dark period that seat prices hit their nadir of $150,000 in August 2002. At the time, even that low price seemed like a desperate gamble. With the growing prominence of electronic trading, CBOE seats appeared to be on a one-way trip to zero...

(My hands are tired from cutting and pasting, but you can find the rest of the article here: Have CBOE Seats Finally Hit Their Peak? - Part Two