How Are Standardized Derivatives like Exchange-Traded Options Designed for CLOB Compatibility?
Exchange-traded options are designed for CLOB compatibility through extreme standardization of their key terms. Exchanges predefine the underlying asset, the contract size (e.g.
100 shares), the expiration dates (e.g. the third Friday of the month), and the strike prices (e.g. in increments of $5). By fixing these variables, the exchange makes the options fungible.
This allows thousands of traders to post bids and offers on a specific option contract (e.g. a $150 call expiring in December), creating the concentrated liquidity needed for a CLOB to function efficiently.
