What are index options? Index options V.S. Stock options
Index Options are financial derivatives that give investors the right, but not the obligation, to buy or sell the value of an underlying index at a predetermined price (strike price) before a specified expiration date. These options are settled in cash rather than physical assets. Here are the differences between index options and stock options.
Type | Index Options | Stock Options |
Underlying Asset | Stock Index (e.g., S&P 500, NASDAQ-100) | Individual company stocks |
Exercise Style | European-style | American-style |
Settlement | Cash settlement based on the index's value | Physical delivery of shares |
Purpose | Market hedging, portfolio management, and exposure to the broader market. | Speculation on or hedging against price movements of specific stocks |
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