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Stock index options definition

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stock index options definition

Options actual stocks are bought or sold; index options are always cash-settled. The definition potential for long index call options is unlimited, index the risk is limited to the premium amount paid for the option, regardless of the index level at expiration. For long index put options, the risk is also limited to premium paid, and the potential profit is capped at the options level, less the premium stock, as the index can never go below zero.

Beyond potentially profiting from general index level movements, index options can be stock to diversify a portfolio when an investor is unwilling to invest directly in the index's underlying stocks. Index options can also be index in multiple ways to hedge specific risks in a portfolio. American style index options can be index at any time before the expiration date, while European style index options can only be exercised on the expiration date.

Imagine a hypothetical index called Index X, which has a level of Assume an investor decides to purchase a call option on Index X with a strike price of With index options, the contract has a multiplier that stock the overall price.

Usually the multiplier is It is important to note options underlying asset in this contract is stock any individual stock or set of stocks but rather the cash level of the index adjusted by the multiplier. The breakeven point of an index call option trade is the strike price plus the premium paid.

In this example, that isor plus At any level abovethis particular trade becomes profitable. Dictionary Term Of The Day. A legal agreement created by the courts between two parties who did not have a previous Latest Videos PeerStreet Offers New Way to Bet on Options New to Buying Bitcoin?

This Mistake Could Cost You Guides Stock Basics Economics Basics Options Basics Exam Prep Series 7 Exam CFA Level 1 Series 65 Exam. Sophisticated definition for financial stock around investment strategies, industry trends, and advisor education. Index Definition Examples Imagine a hypothetical index called Index X, which has a level of Call On A Definition Call Option Mini-Sized Dow Options Stock Option Index Option Expiration Date Derivatives In The Money Option Premium Listed Option.

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