stock index option

Stock index option

An option in which the underlying is a common stock index.

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stock index option

A contract that gives its owner the right to buy (call option) or sell (put option) a stock index at a fixed value until a specified date. Options are traded on the S&P 500, the S&P 100, the NYSE Composite Index, and the Major Market Index, along with specialized indexes. These options work exactly like regular stock options except that an index rather than a particular stock is the underlying asset. As with stock index futures, delivery must be in cash because it is not possible to deliver an index. See also Section 1256 contracts.

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stock index option

A call or put option contract in which the underlying asset is a stock index. 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 phyiscal 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.