Final Settlement Cash Settlement. On the last trading day, the closing value of the underlying index would be the final settlement price of the expiring futures contract. On the last trading day, the closing value of the underlying stock is the final settlement price of the expiring futures contract.
Trading Hours 9. Premium quotation Rs per share Strike Price Intervals Shall have a minimum of 3 strikes 1 in-the-money, 1 near-the-money, 1 out-of-the-money. Security Symbol. Click here for details. Contract Multiplier. Last Thursday of each contract maturity month.
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Cash Settlement. As with equity options, time value is affected by changes in volatility, time until expiration, interest rates and dividend amounts paid by the component securities of the underlying index. The exercise settlement value is an index value used to calculate how much money will change hands, the exercise settlement amount, when a given index option is exercised, either before or at expiration.
The value of every index underlying an option, including the exercise settlement value, is the value of the index as determined by the reporting authority designated by the market where the option is traded. Unless OCC directs otherwise, the value determined by the reporting authority is conclusively presumed to be accurate and deemed to be final for the purpose of calculating the exercise settlement amount.
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- Equity Index Options.
In order to ensure that an index option is exercised on a particular day before expiration, the holder must notify his brokerage firm before the firm's exercise cut-off time for accepting exercise instructions on that day. On expiration days, the cut-off time for exercise may be different from that for an early exercise before expiration.
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Note: Different firms may have different cut-off times for accepting exercise instructions from customers, and those cut-off times may be different for different classes of options. In addition, the cut-off times for index options may be different from those for equity options. Upon receipt of an exercise notice, OCC will assign it to one or more Clearing Members with short positions in the same series in accordance with its established procedures. The Clearing Member will, in turn, assign one or more of its customers, either randomly or on a first-in first-out basis, who hold short positions in that series.
Upon assignment of the exercise notice, the writer of the index option has the obligation to pay this amount of cash. Settlement and the resulting transfer of cash generally occur on the next business day after exercise. Note: Most firms require their customers to notify the firm of the customer's intention to exercise at expiration, even if an option is in-the-money.
You should ask your firm to thoroughly explain its exercise procedures, including any deadline your firm may have for exercise instructions on the last trading day before expiration. The exercise settlement values of equity index options are determined by their reporting authorities in a variety of ways. The two most common are:. PM settlement - Exercise settlement values are based on the reported level of the index calculated with the last reported prices of the index's component stocks at the close of market hours on the day of exercise.
AM settlement - Exercise settlement values are based on the reported level of the index calculated with the opening prices of the index's component stocks on the day of exercise. If a particular component security does not open for trading on the day the exercise settlement value is determined, the last reported price of that security is used. Investors should be aware that the exercise settlement value of an index option that is derived from the opening prices of the component securities may not be reported for several hours following the opening of trading in those securities.
A number of updated index levels may be reported at and after the opening before the exercise settlement value is reported. There could be a substantial divergence between those reported index levels and the reported exercise settlement value.
Although equity option contracts generally have only American-style expirations, index options can have either American- or European-style. In the case of an American-style option, the holder of the option has the right to exercise it on or at any time before its expiration date. Otherwise, the option will expire worthless and cease to exist as a financial instrument. It follows that the writer of an American-style option can be assigned at any time, either when or before the option expires, although early assignment is not always predictable.
A European-style option is one that can only be exercised during a specified period of time prior to its expiration. This period may vary with different classes of index options.
What are index options and how do they work?
Likewise, the writer of a European-style option can be assigned only during this exercise period. The amount of cash received upon exercise of an index option or when it expires depends on the closing value of the underlying index in comparison to the strike price of the index option.
The amount of cash changing hands is called the exercise settlement amount. This calculation applies whether the option is exercised before or at its expiration. In the case of a call, if the underlying index value is above the strike price, the holder may exercise the option and receive the exercise settlement amount. For example, with the settlement value of the index reported as The writer of the option would pay the holder this cash amount. In the case of a put, if the underlying index value is below the strike price, the holder may exercise the option and receive the exercise settlement amount.
As with equity options, an index option writer wishing to close out his position buys a contract with the same terms in the marketplace. In order to avoid assignment and its inherent obligations, the option writer must buy this contract before the close of the market on any given day to avoid notification of assignment on the next business day. To close out a long position, the purchaser of an index option can either sell the contract in the marketplace or exercise it if profitable to do so.
Important Note: Options involve risk and are not suitable for all investors. All Rights Reserved. Website not provided by OIC. Content licensed by the Options Industry Council is intended to educate investors about U. Options involve risk and are not suitable for all investors. For more information, please click here. The articles in this section are provided by The Options Industry Council and is intended for educational purposes only and does not in any way constitute recommendations or advice from SogoTrade,Inc.
Accordingly, SogoTrade, Inc. Please note fees, commissions and interest charges should be considered when calculating results of options strategies.
What are index options? | Investment products | DEGIRO
Transaction costs may be significant in multi-leg option strategies, including spreads, as they involve multiple commission charges. SogoTrade, Inc does not provide tax advice. All rights reserved. Brokerage services provided by SogoTrade, Inc. For details, please see www. This coverage does not insure against declines in the market.
Portfolio management and advisory services are provided by MarketRiders, Inc. Brokerage services are provided by SogoTrade, Inc. SAM provides discretionary advisory services for a fee. Before investing carefully consider the underlying objectives, risks, charges, and expenses of the investment product. All investments involve risk, including loss of principal. Past performance does not guarantee future results. There is no assurance that the investment process will consistently lead to successful investing.
Asset allocation and diversification do not eliminate the risk of experiencing investment losses.