Index Options Flashcards
What are some examples of Broad Based contracts?
OEX - first index option, SandP 100 index (CBOE)
SPX - SandP 500 (CBOE)
XMI - Major market index (AMEX)
DJX - DOW (CBOE)
What happens when broad based contracts are exercised?
Seller pays buyer in the money amount in CASH, computed based on CLOSING value
What 2 things are considered narrow based contracts?
Covers sectors of
- a market
- a country
What is different about the OEX compared to other Index option?
They trade American style (exercise whenever)
What is Beta and what does it measure?
Beta is a number that measures the volatility of an index. If beta is 1, a portfolio moves as fast the index
If beta is 2, a portfolio moves 2x as fast as index, and you need 2x the number of contracts
What can and can’t betas be used to hedge against?
You can use it to hedge against systematic risk, but not unsystematic risk
What is the Put/Call ratio, and what do analysts use it for?
Put volume/call volume
It gauges the strength of the market
- If ratio is high, (over .50) market is over sold, ready to move higher
- If ratio is low (under. 50) market is over bought, ready to move lower
What is an OEX/SPX LEAP?
Long Term Equity AnticiPation Options that have a 36 month maturity
What is the trading cutoff for OEX Leaps?
4:15pm ET (15 minutes after regular option trading cutoff)
What is a VIX option?
The trading symbol for S&P VOLATILITY Index Options. It is known as the “fear gauge”. It derives its infrom from real time S&P 500 Index quotes and its EXPECTED volatility over the next 30 days
What does a low VIX level imply?
the market is calm and the market is likely to move upward
What does a high VIX level imply?
There is heightened investor fear and the market is likely to fall
How do VIX exercises settle?
in Cash
What is the last day to trade VIX’s
Tuesday before the Wednesday morning exercise settlement value calculation
Are VIX’s European or American Exercise style?
European Only
