Stock market index option
Stock market index option is a type of
S&P 500 or the Russell 3000 or to "narrow-based indexes", which are limited to a particular industry.[2]
The global market for exchange-traded stock market index options is notionally valued by the
stock index gives you the right to buy the index, and a put option on a stock index gives you the right to sell the index. Options on stock indexes are similar to exchange-traded funds (ETFs), the difference being that ETF values change throughout the day whereas the value on stock index options change at the end of each trading day. Therefore, profit/loss on an index option is based on the market's closing price for the day, not on any price during the market's open hours. If an index option is exercised before the close of the market, the buyer of the option will in- or out-of-the-money
for an additional amount equal to the difference between the closing price and the exercise price. If the market closes above the intra-day exercise price, then the option will accrue an additional loss, and if the market closes below the intra-day exercise price, the option will accrue an additional gain. For this reason, index options are typically closed out after the market has closed.
See also
References
- ^ "What is index option trading and how does it work?". Investopedia. Retrieved 11 February 2018.
- ^ Understanding Index Options (PDF). Options Clearing Corporation. 2013.
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