OEX

What is OEX?

OEX, which trades on the Chicago Board Options Exchange (CBOE), is the ticker symbol used to distinguish Standard and Poor's 100 index options.

Figuring out OEX

OEX options were the original standard for index options trading on the domestic stock market. Over the long haul, options on the S&P 500 (SPX) passed them in prominence. To the disappointment of OEX devotees, the calculation for the CBOE volatility index, called the VIX, changed from involving OEX options to SPX options in 2003. Traders can watch the old form through the symbol VXO.

The Standard and Poor's 100 index is a subset of the broader Standard and Poor's 500 index and tracks the performance of the 100 largest stocks, by market capitalization, in the U.S. market. It is a capitalization-weighted index and the stocks are looked over a broad scope of industries, in this way making the index a proxy for U.S. corporate performance. Every part stock is weighted by the total market value of its outstanding shares. In this manner, the impact of a part's price change is proportional to its market cap or market value, which is the share price times the number of shares outstanding.

Despite the fact that it may not be just about as well known as the S&P 500, it stays an important benchmark for the overwhelming majority asset managers with money invested in the big, blue chip arena. The key criteria for the inclusion of a stock in the index is having options accessible, and something like half of the stock must be accessible to the overall population to trade.

Options Trading

Options give the holder the right, yet not the obligation, to buy or sell the underlying asset at a specific price at or by a specific date. On account of OEX options, it would be the right to buy or sell the S&P 100 index. Since an index is definitely not an unmistakable thing, OEX options settle for cash.

Traders use OEX options to hedge or conjecture on the performance of the large cap segment of the stock market. Strategies, for example, vertical spreads and strangles, are conceivable with OEX options just as they are with individual stock options.

For instance, a money manager holds a portfolio of blue chip stocks yet is concerned short-term market conditions could impact it in a negative manner. The manager could hedge by buying an OEX put option with a close to expiration as insurance, in case the market drops unexpectedly. While the portfolio managed may not hold each of the 100 OEX stocks in similar extents, the correlation between the two may be strong enough that the hedge appears to be legit.

Features

• Traders use OEX options to hedge or conjecture on the performance of the large cap segment of the stock market.
• OEX, which trades on the Chicago Board Options Exchange (CBOE), is the ticker symbol used to distinguish Standard and Poor's 100 index options.
• OEX options were the original standard for index options trading on the domestic stock market, however, over the long haul, options on the S&P 500 (SPX) passed them in notoriety.