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Derivatives

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  • August 27, 2022
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Stock Index Option

An option contract which has a stock index as underlying. It grants the holder the right, without the obligation, to buy (for a call) or sell (for a put) a specific stock index at a specified price by a certain expiration date. In other words, the stock index option allows investors to trade various types of indexes without having to trade individual stocks.

For example, if an industrial sector is expected to follow a declining trend in the next quarter, an investor may consider buying a put option on a relevant industrial index, rather than short selling the individual stocks of industrial companies.


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