Index Options
Index options are options that are traded based on indices like the S&P 100 or the Dow Industrials. Sometimes it can be easier to call the general market instead of individual stocks. Here is a list of some index symbols with options: OEX (S&P 100) , SPX (S&P 500), DJX (Dow Jones Industrials), NDX (Nasdaq 100), NYA (NYSE Composite), XJO (S&P ASX 200)
Benefits of Index Options
There is greater stability in a stock index due to diversification and it's composite of stocks listed. The effects of mergers, announcements or reports is not as volatile in an index as opposed to the volatility of the individual stocks that make the index. There is greater liquidity with index options due to the high volume of activity, thereby providing the investor to enter and exit with ease. This liquidity provides a wider array of strike prices and expiration dates than the average stock options. Index options are automatically settled in cash only at expiration.
Features of Index Options within Australia :
|
Underlaying Asset |
S&P / ASX 200 Index |
|
ASX Code |
XJO |
|
Exercise Style |
European (exercise available only on expiry day) |
|
Settlement |
Cash settled with reference to the OPIC |
|
Expiration Months |
Quarterly: March, June, September and December |
|
Expiration Day |
The third Thursday in the contract month |
|
Last Trading Day |
12 Noon on expiry day |
|
Premium |
Expressed in Index Points |
|
Strike Price |
25 point intervals |
|
Index Multiplier |
AUD $10 per point |
|
Minimum Tick Size |
1 point or $10 |
|
Trading Hours |
6.00am to 8.00pm EST |
|
Contract Value |
The exercise price of the option multiplied by $10 |
Courtesy: ASX
Some of the differences between index options and options over securities are:
- index options are cash settled.
- index options are European in exercise style. This means the holder can only exercise an index option on the expiry day.
- the strike price and premium of an index option are expressed in points. A multiplier is then applied to give a dollar figure.
Index options are cash settled.
The settlement amount is based on the opening prices of the stocks in the underlying index on the morning of the maturity date. As the stocks in the relevant index open, the first traded price of each stock is recorded. Once all stocks in the index have opened, an index calculation (the Opening Price Index Calculation (OPIC)) is made using these opening prices.
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