Index option

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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 ?
All our tips on index Options are driven by complete and thorough analysis and study of the market and thus you could be confident with our accurate recommendation.
Nationwide Life and Annuity Insurance Company, an affiliate of Columbus, Ohio-based Nationwide Mutual Insurance Company, has added two index options to its Nationwide New Heights indexed annuity contracts.
Other products engineered by CBOE include equity options, security index options, Weeklys options, FLEX options, and benchmark products such as the CBOE S&P 500 BuyWrite Index (BXM).
CBOE, CFE and C2 each posted all-time record monthly volumes and average daily volumes in October, and several individual products including S&P 500 Index options and CBOE Volatility Index (VIX Index) futures and options set monthly and daily records.
9% from 2009 levels to 951,054 contracts traded and activity in H-shares index options rose 40% year-on-year to 2,750,609 contracts traded, according to figures released by the exchange for the period from 1 January to 15 December 2010.
Hong Kong Exchanges and Clearing said it plans to introduce Flexible Index Options in the first quarter of next year, pending regulatory approval.
He uses the skills he acquired in trading equity options, equity index options, currency options, commodity options, and mortgage derivatives to playing Limit Hold'em.
More adventurous investors use stock index options to protect their portfolios against stock market corrections.
SINCE THE CHICAGO BOARD OPTIONS EXCHANGE INTRODUCED THE FIRST INDEX OPTION CONTRACT IN 1983, INDEX OPTIONS MARKETS HAVE HAD A SIGNIFICANT ROLE IN FINANCIAL MARKETS.
Despite the low volume, some traders bought heavily as Friday was a ``double witching'' day, with stock and index options expiring.
Average daily trading volume for equity and index options contracts increased 70.
30 May 2014 -- US-based options exchange operator the Chicago Board Options Exchange Inc (NASDAQ: CBOE) said that on Monday, July 7, it plans to introduce PM-settled, End-of-Month options series with expiration dates falling on the last business day of the month for its S&P 500 Index options.