Options On Stock Indices

Several exchanges trade options on stock indices. Some of the indices used track the movement of the U.S. stock market as a whole. Some are based on the performance of a particular sector (e.g., mining, computer technology, and utilities). Some are designed to track the performance of a foreign stock market.

Table 11.1 shows the closing prices of options on February 3, 1992, as they appeared in The Wall Street Journal the following day. The S&P 500, NYSE Composite, and Major Market Index were discussed in Section 3.7. The S&P 100 is similar to the S&P 500 but based on only 100 stocks: 92 industrials, 1 utility, 2 transportation companies, and 5 financial institutions.

The acronym LEAPS in Table 11.1 stands for Long-term Equity Anticipation Securities and was originated by the CBOE. LEAPS are long-term exchange-traded options. They last up to 3 years. Table 11.1 shows quotes for LEAPS on the S&P 500, the S&P 100, and the Major Market" Index. The index is divided by 10 for the purposes of quoting the strike price and the option price. One contract is an option on 100 times one-tenth of the index (or 10 times the index). LEAPS on indices have expiration dates in December. LEAPS on the S&P 100 and Major Market Index are American while those on the S&P 500 are European. The CBOE and several other exchanges also trade LEAPS on many individual stocks. These have expirations in January.

Another innovation of the CBOE is CAPS. These trade on the S&P 100 and S&P 500. These are options where the payout is capped so that it cannot exceed $30. The options are European except for the following: a call cap is automatically exercised on a day when the index closes more than $30 above the strike price; a put cap is automatically exercised on a day when the index closes more than $30 below the cap level.

The indices underlying other options in Table 11.1 are as follows:

Institutional Index: 75 stocks most widely held by institutions, weighted by market value

Japan Index: 210 stocks traded on the Tokyo Stock Exchange, weighted by price

Gold/Silver Index: 7 mining stocks, weighted by market value Value Line Index: Approximately 1,700 U.S. stocks, equally weighted Utilities Index: 20 electric utility stocks, weighted by market value Financial News Composite Index: 30 blue-chip stocks, weighted by price

250 Options on Stock Indices, Currencies, and Futures Contracts Chapter 11 TABLE 11.1 Closing Prices of Stock Index Options, February 3, 1992

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