Chapter 31: Index Spreading 583 
slightly more volatile than these two larger indices, and also has more technology and 
less basic industry such as steel and chemicals. The OEX movement definitely has 
good correlation to the S&P 500. The S&P 500 Index (SPX) currently trades at about 
twice the "speed" of the OEX Index. This has been true since OEX split 2-for-l in 
November 1997. A one-point move in SPX is approximately equal to a move of 7.5 
points in the Dow-Jones Industrial Average, while a one-point move in OEX is 
approximately equal to 15 Dow points. 
In general, it is easier to spread the indices by using futures rather than options, 
although only the S&P 500 Index has liquid futures markets. (There is a mini-Value 
Line futures market, as well as Dow-Jones futures - both of which are fairly illiq­
uid - but no futures trade on OEX.) One reason for this is liquidity - the index 
futures markets have large open interest. Another reason is tightness of markets. 
Futures markets are normally 5 or 10 cents wide, while option markets are 10 cents 
wide or more. Moreover, an option position that is a full synthetic requires both a put 
and a call. Thus, the spread in the option quotes comes into play twice. 
The Japanese stock market can be spread against the U.S. markets by spread­
ing a U.S. index against Nikkei futures or futures options, traded on the Chicago 
Mere, or against JPN options, traded on the AMEX. 
INTER-INDEX SPREADS USING OPTIONS 
As mentioned before, it may not be as efficient to try to use options in lieu of the 
actual futures spreads since the futures are more liquid. However, there are still 
many applications of the inter-index strategy using options. 
OEX versus S&P 500. The OEX cash-based index options are the most liquid 
option contracts. Thus, any inter-index spread involving the OEX and other indices 
must include the OEX options. 
The S&P 100 was first introduced in 1982 by the CBOE. It was originally 
intended to be an S&P 500 look-alike whose characteristics would allow investors 
who did not want to trade futures ( S&P 500 futures) the opportunity to be able to 
trade a broad index by offering options on the OEX. Initially, the index was known as 
the CBOE 100, but later the CBOE and Standard and Poor's Corp. reached an 
agreement whereby the index would be added to S&P's array of indices. It was then 
renamed the S&P 100. 
Initially, the two indices traded at about the same price. The OEX was the more 
expensive of the two for a while in the early 1980s. As the bull market of the 1980s 
matured, the S&P 500 ground its way higher, eventually reaching a price nearly 30 
points higher than OEX. As one can see, there is ample room for movement in the 
spread between the cash indices.