Index Options

An index is a measure, or calculation, of a group of securities or other interests. The options on indexes settle for cash. Index options can track broad- or narrow-based indexes, and be American- or European-style exercise, so it is important that each investor thoroughly understand the specifications of the product they intend to trade.

Unit of Trade:  One contract equals $100 (the index multiplier) times the index level.

Premium Quotations:  Stated in points and decimals. One point equals $100. Minimum tick for series trading below $3 is $.05 ($5.00), and for all other series, $.10 ($10.00). Some exchange programs allow for non-standard premium quotations in $.01 increments.

Strike Price Intervals:  Generally, index options are listed at 5-point intervals to bracket the current value of the index. Higher index values may result in larger strike price intervals. SPX options may be listed with up to 25-point intervals in the far-term months. OEX® options are listed in 10-point intervals in the far-term month.

Exercise Style:  Index options are designated as either American-style or European-style. American-style options can be exercised on any business day prior to expiration. European-style options can be exercised only at expiration.

Expiration Months:  In general, two near-term months plus two additional months in the January, February or March quarterly cycle. However, different exchange programs allow for expiration-month listing beyond the standard method.

Expiration Dates:  Monthly, weekly and quarterly index options expire on the date listed on the contract.

Exercise Settlement Price:  The dollar difference between the index settlement value and the strike price of the contract, multiplied by 100. Settlement will result in the delivery of cash on the business day following exercise. (Note: See product specifications for each index as there may be different means of calculation.) Different indexes derive their settlement value at different times. Know all the product specifications including how and when settlement value is derived before entering into positions.

Position Limits:  Investors may check position limit reports from OCC's website or exchanges' websites for more information.

Minimum Customer Margin:  Purchases of puts or calls with 9 months or less until expiration must be paid for in full. Writers of uncovered puts or calls must deposit / maintain 100% of the option proceeds* plus 20% of the aggregate contract value (current equity price x $100) minus the amount by which the option is out-of-the-money, if any, subject to a minimum for calls of option proceeds* plus 10% of the aggregate contract value and a minimum for puts of option proceeds* plus 10% of the aggregate exercise price amount. Margin requirements for index products may vary.
*For calculating maintenance margin, use the option's current market value instead of the option proceeds.

Trading Hours:  Broad-based indexes - 9:30 a.m. to 4:15 p.m. ET; Sector indexes - 9:30 a.m. to 4:00 p.m. ET

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