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