calls and puts on indexes of stocks. There are "broad" indexes applying to a wide range of firms and industries. There are also "narrow-based" indexes relating to one industry or economic sector. An advantage of investing in an index option is that an interest in many companies is possible with a limited investment. It should be noted, however, that options have a limited life, are used to speculate or to hedge, and are settled in cash. In other words, if an index option is exercised (not normally done), the investor would not receive (or pay) the underlying stock, but would, rather, settle in cash.
calls and puts on indexes of stocks. These options are traded on the New York, American, and Chicago Board Options exchanges, among others. They allow investors to trade in a particular market or industry group without having to buy all the stocks individually.
calls and puts on indexes of stocks. These options are traded on the New York, American, and Chicago Board Options Exchanges, among others. Broad-based indexes cover a wide range of companies and industries, whereas narrow-based indexes consist of stocks in one industry or sector of the economy. Index options allow investors to trade in a particular market or industry group without having to buy all the stocks individually. For instance, someone who thought oil stocks were about to fall could buy a put on the oil index instead of selling short shares in half a dozen oil companies.
