Have you ever heard of index options? What are the differences between index options and stock options? Index options are actually options with 'indices' as the underlying assets, not just the stocks of a single company.

There are several characteristics of index options that traders find attractive, such as cash settlement, no early exercise risk and potential tax advantages. At Futu Securities, you can easily invest in US index options.

However, please remember that the stock market is always unpredictable. It is crucial to have an in-depth understanding of index options, especially to be aware of potential risks.

Now, let's delve into how to trade index options on Futubull.

1. What are index options?

Index options are a type of derivative instrument that use indices as underlying assets, allowing traders to trade based on their views on the direction of the market (bullish, bearish, or neutral).

For example, the S&P 500 index represents the performance of approximately 500 large companies and reflects the overall situation of the US stock market.

If a trader has a strong view on the direction of the market, they can consider trading index options that track the S&P 500 index.

2. Advantages of index options

• Speculate on market trends

• Create income

• Hedge downside risk of stock portfolios

Futu Securities supports trading of US index options including SPX (S&P 500 index), VIX (VIX volatility index), XSP (mini S&P 500 index), DJX (Dow Jones 100 index), RUT (E-mini Russell 2000 index), and NDX (NASDAQ 100 index). More index options will be supported for customer trading in the future. SPX, VIX, XSP, DJX, and RUT index options are exclusively listed on CBOE, while NDX index options are listed on GEMX, ISE, and PHLX. OCC is responsible for clearing all of the above index options.

SPX, VIX, XSP, DJX, and RUT index options are exclusively listed on CBOE, while NDX index options are listed on GEMX, ISE, and PHLX. OCC is responsible for clearing all of the above index options.

3. Index options vs. stock options/ETF options

Index options have several differences from stock options/ETF options. Let's explore the potential advantages of trading index options in more depth.

Exercise style: European

Stock options are usually American-style options, while the vast majority of index options are European-style options. European-style options do not have early exercise or early assignment. Currently, all US index options supported by Futu Securities are European-style options.

Settlement type: Cash

Index options are different from stock options that involve exchanging physical stocks. Since investors cannot trade the underlying indices themselves, index options are settled in cash. At expiration, the value of the option is determined by the difference between the exercise price and the settlement price, and the profit or loss is reflected directly in your account.

(See table below for details)

SPX index options are cash-settled options. The strike price of a certain SPX call option is 4420.

- If the settlement price of the SPX index at the expiration of the option contract is 4432, then the settlement value of the option is (4432-4420) × 100 = 1200 US dollars.

- If the settlement price of the SPX index at the expiration of the option contract is 4418, then the settlement value of the option is 0 US dollars.

Note: 100 is the contract multiplier of SPX index options.

Contract Size:

The size of an option contract is the product of the contract multiplier and the option contract's exercise price. Generally, the contract size of index options is larger than that of their corresponding ETF options contracts. For example, the contract size of SPX options is approximately 10 times that of SPY options contracts.

4. How to trade US stock indices?

Mobile end: Market-Options-US Index-Hot Indexes-Index Quote Page-Options-Access Options Chain Page

Computer end: Options tab-Select Index Options Volume-Select Linked Assets to Display Options Chain-Right-click Specific Contract-Buy/Sell Options-Quick Trade

5. QA

● What are the trading hours for index options?

Non-final trading day:

○ Eastern Time (ET) 9:30 am to 4:15 pm

Final trading day:

○ AM-settled index options contracts: Eastern Time (ET) 9:30 am to 4:15 pm

○ PM-settled index options contracts: Eastern Time (ET) 9:30 am to 4:00 pm

In addition to the above trading hours, Futu Securities temporarily does not support other trading hours for index options.

Why can't some index options be traded on the expiration date?

Index options contracts have two characteristics: expiration date and final trading day.

AM settlement index options: the final trading day is the day before the expiration date.

PM settlement index options: the final trading day is the same as the expiration date.

Option contracts can only be traded before (including) the final trading day. Therefore, AM settlement index options cannot be traded on the expiration date.