How are Options Created?

🎯 Who creates the options in an Option Chain?

• The Cboe itself lists the options: The Chicago Board Options Exchange (Cboe) determines which options contracts are available for trading—this includes the underlying asset, strike prices, expiration dates, and other specifications.

• Market Makers bring them to life: Once listed, Market Makers—specialized participants on the exchange—quote bid and ask prices for these contracts. They provide liquidity by being ready to buy or sell, which allows the contracts to be actively traded.

• You can technically “create” an option too: When a trader sells to open a position (i.e., writes an option), they’re creating a new contract—provided someone is willing to take the other side of the trade.

• The OCC guarantees the contracts: The Options Clearing Corporation (OCC) steps in to ensure every contract is honored. It handles the back-office work like exercises, assignments, and adjustments.

So in short: Cboe lists them, Market Makers quote them, traders trade them, and the OCC guarantees them. It’s a beautifully orchestrated system.

🧩 How can  you technically "create" an option? When you sell an option, you're creating a new one—if you're the first to write it.

• If you sell to open, you're acting as the option writer. That means you're creating a brand-new contract that didn’t exist before. The OCC (Options Clearing Corporation) now tracks this new obligation.

• If someone buys to open, they’re taking the other side of your newly minted contract. You’re the seller, they’re the buyer. Boom—new option created.

👥 But if you're selling to close, you're just offloading an existing position. That option already exists, and you're passing it on to someone else—possibly a market maker or another trader.

💡 Market Makers step in when there's no natural buyer or seller. If you sell to open and no retail trader wants to buy, a market maker might take the other side to keep the market liquid. But the contract itself? You created it.

📊 Think of it like this:

• Sell to open = You’re the originator.

• Sell to close = You’re transferring an existing one.
  

Want to learn more? Message me and we’ll explore it together.