stock index option

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Stock index option

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

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 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.

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.
References in periodicals archive ?
In particular, no such study exists in the context of the Indian derivative market, which ranks second in the world in trading of stock index options. Thus, this study undertakes following objectives to be investigated.
Empirical results will be given for reference for promotion of China's stock index options, provide the scientific evidence for transaction pricing and hedging of issuers and investors, and lay a foundation for stable and healthy development of stock index options market.
Stock market volatility and the information content of the stock index options. Journal of Econometrics, 52, 267-287.
Lewis, "The behavior of the volatility implicit in the prices of stock index options".
Beware of the witch This coming Friday will mark the last so-called 'quadruple witching' day of the year, when contracts for stock options, single stock futures, stock index options and stock index futures all expire.
AIJ attracted its clients by saying that it would make a stable profit from investments in stock index options and was popular among investors as an asset manager paying good dividends even during the financial turmoil following the collapse of Lehman Brothers Holdings Inc.
The CBOE Volatility index VIX, which measures expected volatility in the S&P 500 over the next 30 days, closed below 19 on Friday for the first time since July 22, as a stabilising market reduced investor desire to seek protection in stock index options against future losses.
Zivney, 1989, "Optimal Cross-Hedge Portfolios for Hedging Stock Index Options", Journal of Futures Markets, 9:67-75
But index product writers also use a small portion of premium to buy stock index options. If the market index falls, the options are worthless, and the product writer lets them expire.
Bates compares the resulting equilibrium with various option pricing anomalies reported in the literature: the tendency of stock index options to overpredict volatility and jump risk; the Jackwerth (2000) implicit pricing kernel puzzle; and the stochastic evolution of option prices.
Analysts warned of added volatility during the session due to 'triple witching,' the simultaneous expiration of stock index futures, stock index options and stock options.
More adventurous investors use stock index options to protect their portfolios against stock market corrections.