An option contract, call or put, that trades (i.e., is listed) on an organized or regulated securities or futures exchange. The exchange is only authorized to trade specific options that meet its listing requirements. By nature, organized exchanges reduce many types of risks, particularly a type of the credit risk known as a counterparty risk by imposing a set of trading rules including size and price limits, margin requirements, daily marking to market, etc. Additionally, the exchange has to provide a market maker (two-way intermediary) that can assume the role of either side of the transaction.
Opposite to this type is the over-the-counter options (OTC option) which are usually entered into between the two counterparties without going through an intermediary exchange.
Listed options (a form of listed derivatives) are also referred to as exchange-traded options or exchange-listed options.
