24 lines
1.6 KiB
Plaintext
24 lines
1.6 KiB
Plaintext
Index Options
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Trading options on the Spiders ETF is a convenient way to trade the
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Standard & Poor’s (S&P) 500. But it’s not the only way. There are other
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option contracts listed on the S&P 500. The SPX is one of the major ones.
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The SPX is an index option contract. There are some very important
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differences between ETF options like SPY and index options like SPX.
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The first difference is the underlying. The underlying for ETF options is
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100 shares of the ETF. The underlying for index options is the numerical
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value of the index. So if the S&P 500 is at 1303.50, the underlying for SPX
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options is 1303.50. When an SPX call option is exercised, instead of getting
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100 shares of something, the exerciser gets the ITM cash value of the
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option times $100. Again, with SPX at 1303.50, if a 1300 call is exercised,
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the exerciser gets $350—that’s 1303.50 minus 1300, times $100. This is
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called cash settlement .
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Many index options are European, which means no early exercise. At
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expiration, any long ITM options in a trader’s inventory result in an account
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credit; any short ITMs result in a debit of the ITM value times $100. The
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settlement process for determining whether a European-style index option is
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in-the-money at expiration is a little different, too. Often, these indexes are
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a.m. settled. A.m.-settled index options will have actual expiration on the
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conventional Saturday following the third Friday of the month. But the final
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trading day is the Thursday before the expiration day. The final settlement
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value of the index is determined by the opening prices of the components of
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the index on Friday morning. |