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+584 Part V: Index Options and Futures 
+The S&P 500 has more stocks, and while both indices are capitalization-weight­
+ed, 500 stocks include many smaller stocks than the 100-stock index. Also, the OEX 
+is more heavily weighted by technology issues and is therefore slightly more volatile. 
+Finally, the OEX does not contain several stocks that are heavily weighted in the S&P 
+500 because those stocks do not have options listed on the CBOE: Procter and 
+Gamble, Philip Morris, and Royal Dutch, to name a few. There are two ways to 
+approach this spread - either from the perspective of the derivative products differ­
+ential or by attempting to predict the cash spread. 
+In actual practice, most market-makers in the OEX use the S&P 500 futures to 
+hedge with. Therefore, if the futures have a larger premium - are overpriced - then 
+the OEX calls will be expensive and the puts will be cheap. Thus, there is not as much 
+of an opportunity to establish an inter-index spread in which the derivative products 
+(futures and options in this case) spread differs significantly from the cash spread. 
+That is, the derivative products spread will generally follow the cash spread very 
+closely, because of the number of people trading the spread for hedging purposes. 
+Nevertheless, the application does arise, albeit infrequently, to spread the 
+premium of the derivative products in two indices on strictly a hedged basis with­
+out trying to predict the direction of movement of the cash indices. In order to 
+establish such a spread, one would take a position in futures and an opposite posi­
+tion in both the puts and calls on OEX. Due to the way that options must be exe­
+cuted, one cannot expect the same speed of execution that he can with the futures, 
+unless he is trading from the OEX pit itself. Therefore, there is more of an execu­
+tion risk with this spread. Consequently, most of this type of inter-index spreading 
+is done by the market-makers themselves. It is much more difficult for upstairs 
+traders and customers. 
+USING OPTIONS IN INDEX SPREADS 
+Whenever both indices have options, as most do, the strategist may find that he can 
+use the options to his advantage. This does not mean merely that he can use a syn­
+thetic option position as a substitute for the futures position (long call, short put at 
+the same strike instead of long futures, for example). There are at least two other 
+alternatives with options. First, he could use an in-the-money option as a substitute 
+for the future. Second, he could use the options' delta to construct a more leveraged 
+spread. These alternatives are best used when one is interested in trading the spread 
+between the cash indices - they are not really amenable to the short-term strategy of 
+spreading the premiums between the futures. 
+Using in-the-money options as a substitute for futures gives one an additional 
+advantage: If the cash indices move far enough in either direction, the spreader could