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