Question

What is an index option? What are the main differences between index options and stock options?

Answer 1

Index option is a financial derivative instrument. It gives the Index Option holder ,the right ,not the obligation, to buy or Sell the value of the underlying index like S&P 500 index at a price called Excercise price on or before the Expiration Date, Index option are always settled in Cash.

Index options are of two Types CALL & PUT. Call Option holder has the right not the obligation to buy the underlying asset, where as PUT option holder has the right , not the obligation, to Sell the underlying asset.

Difference between Index Option and Stock Option is Stock option is based on a single company stock where Index optionis based on a group of stocks under that particular Index.

Please let me know if i need to explain further.