Index option

Index option

Index Option

A call or put option contract in which the underlying asset is an index of any sort. For example, in a call, an investor may buy the right to an index on or before the expiration date at a certain strike price. Obviously, one cannot buy or sell a physical index, so the underlying asset is said to be the dollar value of an index at a certain date and time multiplied by $100. Because physical delivery is not possible, when a stock index option is exercised, the delivery is the cash value of the strike price. See also: Exchange-traded fund, Index fund.

index option

A call option or put option with a specific index as the underlying asset. For example, a call option on the S&P 500 gives the option buyer the right to purchase the value of the index at a fixed price until a predetermined date. Index options provide a means to leverage a bet on the future direction of the market or of a particular industry segment without purchasing all the individual securities. Use of the option can entail considerable risk for an investor.

Index option.

Index options are puts and calls on a stock index rather than on an individual stock. They give investors the opportunity to hedge their portfolios or speculate on gains or losses in a segment of the market.

For example, if you own a group of technology stocks but think technology stocks are going to fall, you might buy a put option on a technology index rather than selling short a number of different technology stocks.

If the value of the index does fall, you could exercise the option and collect cash to partially offset a drop in the value of your portfolio.

However, to use this strategy successfully, the index you choose must perform the way the portion of the portfolio you're trying to hedge performs.

And since changes in an index are difficult to predict, index options tend to be volatile. The more time there is until an index option expires, the more volatile the option tends to be.

References in periodicals archive ?
The OEX is the stock index option most actively traded among individual investors," says Stanley Marszalk, vice president of CMI Business Services Inc.
Equity investors tend to overpay for index puts to insure their portfolios, driving up index option prices and causing index option Implied Volatility to consistently exceed subsequent Realized Volatility.
index option, and options and futures on the CBOE Volatility Index (the VIX Index).
The IvyDB Global Indices database has become the industry standard for historical index option prices and implied volatility information since its launch in 2009.
Ivy DB Europe will give traders access to more than four years of high-quality European equity and index option price data and implied volatility calculations.
Since creating the first cash-settled index option in 1983, CBOE has been a pioneer and leader in index options trading.
Goldberg continued, "The KBW Bank Index's long history as a benchmark makes this index option an excellent choice for investors who want to express a view on the banking sector.
CBOE offers the widest array of index option and volatility products in the world.
Highlights of the new offerings include 6-, 8-, 10- and 12-year Index Option terms with Elite Choice, a 5-percent up-front bonus with Elite Choice Rewards, and an updated 10-percent free withdrawal option available with Elite Annual Reset.
November ADV in index options decreased 15 percent from October 2015, but increased 14 percent from ADV in November 2014.
Hong Kong Exchanges and Clearing said it plans to introduce Flexible Index Options in the first quarter of next year, pending regulatory approval.
It occurs with the concurrent expiration of groups of stock index futures, stock index options and options on individual stocks.