Quick Answer
The system first runs a maximum composite width check. A series that fails it is ineligible to open, and its queuing period continues. A series that passes opens at a volume-maximizing, imbalance-minimizing trade price where orders and quotes are marketable against each other at a price not outside the opening collar, and without a trade where none are.
The trigger starts the rotation; this lesson covers what happens next. The sequence is a width test, then a price, then an execution, and each step has a named alternative when the step fails.
What Decides Whether a Series May Open at All?
Three defined terms carry the test. The composite market for a series is comprised of two prices.
- The higher of the then-current best appointed market-maker bulk message bid on the exchange and the best bid other eligible exchanges disseminate, if there is such a bid.
- The lower of the then-current best appointed market-maker bulk message offer on the exchange and the best offer other eligible exchanges disseminate, if there is such an offer.
The exchange itself calculates that away best bid and offer from market information it receives from the Options Price Reporting Authority (OPRA), so the away side is an exchange-derived figure rather than a raw quotation.
The composite bid and composite offer are the bid and the offer used to determine the composite market, and the composite width is the width between them for a series.
The maximum composite width is the amount the composite width may generally not be greater than for the series to open, subject to the exceptions in the check itself.
The exchange determines the maximum composite width on a class and composite bid basis, and it may modify that amount during the opening auction process. It disseminates any modification to all subscribers to the data feeds that deliver opening auction updates.
The maximum composite width check then has three branches.
| Branch | Condition | Result |
|---|---|---|
| First | Composite market not crossed, and composite width less than or equal to the maximum composite width | Series eligible to open |
| Second | Composite market not crossed, composite width greater than the maximum, but there are no non-market-maker-capacity market orders and no non-market-maker-capacity buy (sell) limit orders priced higher (lower) than the composite market midpoint, and no orders or quotes marketable against each other | Series eligible to open |
| Third | Neither of the above is satisfied, there is no composite market, or the composite market is crossed | Series ineligible to open |
Where the series is ineligible, the queuing period continues, including the dissemination of opening auction updates, until one of the first two branches is satisfied, until the series opens on a forced opening, or until the exchange opens it under its power to deviate from the standard process.
Exam Tip: Gotchas
- A width wider than the maximum does not by itself block an opening. The second branch opens the series anyway when no aggressive non-market-maker orders and no marketable interest are present.
- No composite market is treated the same as a crossed one. Both land in the third branch and leave the series ineligible.
- The maximum composite width is set per class and per composite bid, and it can move mid-process. It is not one exchange-wide number fixed for the day.
How Does the System Choose the Opening Trade Price?
After a series satisfies the maximum composite width check, the system looks for orders and quotes marketable against each other at a price not outside the opening collar.
The opening collar is the price range that establishes limits at or inside of which the system determines the opening trade price. The exchange sets the width of that range on a class and composite bid basis.
The exchange may modify that range during the opening auction process, and it disseminates any modification to all subscribers to the data feeds that deliver opening auction updates.
The opening trade price is the price at which the system executes opening trades in a series during the opening rotation. If there are no such orders or quotes, there is no opening trade price. If there are, that price is the volume-maximizing, imbalance-minimizing price that is not outside the opening collar, determined in this order.
- The price at which the largest number of contracts can execute, the volume-maximizing price.
- If there are multiple volume-maximizing prices, the price at which the fewest contracts remain unexecuted, the imbalance-minimizing price.
- If there are multiple volume-maximizing, imbalance-minimizing prices, the highest (lowest) price where there is a buy (sell) imbalance, or the price at or nearest to the midpoint of the opening collar where there is no imbalance.
If there is no opening trade price, the system opens the series without a trade.
Exam Tip: Gotchas
- Satisfying the width check does not guarantee a trade. A series can be eligible to open and still open without a trade when nothing is marketable at a price not outside the collar.
- The tie-breakers run in sequence. Volume first, then imbalance, and only then the imbalance direction or the collar midpoint.
How Are Orders Prioritized and Allocated at the Opening Trade Price?
Where the system establishes an opening trade price, it executes orders and quotes in the queuing book at that price. It prioritizes them in this order: market orders, then limit orders and quotes with prices better than the opening trade price, then orders and quotes at the opening trade price.
The system allocates orders and quotes at the same price on a pro-rata basis under the Cboe book priority and allocation rule. It applies a priority customer overlay to all classes, except for SPX (including SPXW) and for options on the Cboe Volatility Index (VIX), excluding VIXW.
Exam Tip: Gotchas
- Everything executes at one price even though priority has three tiers. A better-priced limit order does not get its own better price at the opening; it gets an earlier place in line at the opening trade price.
- The priority customer overlay has named exceptions. It applies to all classes except SPX, which includes SPXW, and VIX, which excludes VIXW.
What Happens if a Series Cannot Satisfy the Width Check?
A series that has not satisfied the maximum composite width check within a time period running from the class's opening rotation trigger is forced open at the end of that period, but only if the branch for its class type is met.
The exchange determines that time period for all classes, but it may set one time period for all equity or exchange-traded product option classes and another for all exclusively listed index options, and those two need not be the same.
- Equity and exchange-traded product option classes: the composite market is not crossed, and the system observes a best bid or offer from other eligible exchanges carrying a non-zero offer for the series.
- Exclusively listed options: the composite market is not crossed and no non-market-maker-capacity orders are crossed, or there is no composite market and no non-market-maker-capacity orders are crossed.
On a forced opening the opening trade price determination and the ordinary series opening do not occur, and the system opens the series without a trade. If the series satisfies the width check before that period ends, and for equity and exchange-traded product classes before the system observes a best bid or offer from other eligible exchanges, it opens in the ordinary way instead.
The forced opening process does not apply to the opening of SPX constituent option series on exercise settlement value determination days. Those series open for regular trading hours under a modified opening auction process instead, and every other provision of the opening auction rule still applies to them except where that modified process or the forced-opening paragraph provides otherwise.
The carve-out exists because the exchange uses those series' opening prices to calculate the exercise settlement value of expiring VIX derivatives.
Exam Tip: Gotchas
- A forced opening never produces an opening trade. The rule expressly disapplies the price determination and the ordinary opening, so the series opens flat.
- The equity branch needs a non-zero offer, not merely any quotation. A best offer of zero from other eligible exchanges does not satisfy it.
What Should You Check on Exam Day?
- On any width question, test the second branch before concluding the series cannot open, since a wide market opens where no aggressive non-market-maker or marketable interest is present.
- Read a forced opening to its result: the series opens without a trade, and no opening trade price is determined.
- Work the price tie-breakers in order, volume then imbalance then direction or collar midpoint, rather than jumping to the midpoint.
- Confirm the equity branch of a forced opening needs a non-zero offer from other eligible exchanges, not merely any quotation.
- Check whether the priority customer overlay applies, since SPX and the volatility index are named exceptions to it.