Chapter 29: Introduction to Index Option Produds and Futures 
The requirement for writing the Dec 170 put naked would be: 
15% of index 
Plus put premium 
Naked put requirement 
$2,520 
+ 500 
$3,020 
Both of these requirements are above the minimum of 10% of the index. 
505 
Options on narrow-based indices are subject to the same naked requirements 
as stock options: 20% of the index plus the premium less an out-of-the-money 
amount, with a minimum requirement of 15% of the index. 
Other margin requirements are similar to those for stock options. For example, 
if one wanted to write the Dec 170 straddle naked, using the same prices as in the 
last example, he would have a margin requirement equal to $3,020 - the larger of the 
put or call requirement, just as he would for stock options. Spread requirements for 
index options work in exactly the same manner as they do for stock options. 
LEAPS INDEX OPTIONS 
LEAPS (Long-term Equity AnticiPation Securities) have been introduced on indices 
in recent years. Readers not familiar with LEAPS should review the prior chapter on 
that subject. Since LEAPS have become popular for stocks, it is only logical to think 
that they would become popular for indices as well. 
The main problem was that a LEAPS could be a 2-year option on a 350 dollar 
underlying index. Such an option might cost 20 points. That is too expensive to attract 
the public customer. Just one option would cost $2,000. Therefore, the exchanges 
created mini-indices out of OEX, SPX, XMI, and others. These mini-indices that 
were created are exactly the same as the full indices, except that they are divided by 
10. This means that instead of having the 2-year put with strike of 350 cost 20 points, 
a 2-year put with a strike of 35 costs 2 points. This is much more affordable for the 
individual trader. 
The following example is of OEX options and the corresponding OAX LEAPS 
options on the same index. NOTE: OAX is not the universal symbol for this mini­
index. OEX LEAPS are American exercise, while SPX LEAPS are European. A bro­
ker should be contacted for symbols, expiration dates, and other details. 
Example: The following is a sample comparison of prices for OEX and for its com­
panion index OLX, which is OEX divided by 5. (Originally, OLX was OEX divided by 
10, but when OEX split 2-for-1 in late 1997, OLX did not split so OLX was thereafter 
equal to OEX divided by 5).