Trading the OEX Index Options

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Before we launch into the subject of OEX Option Trading, we need to establish a foundation for the subject. The $OEX is the code that represents the Standard & Poors 100 (S&P100) which is an index of the top large cap 100 companies listed on stock exchanges in the United States. The index covers a range of industries, but is constructed so that larger companies have a greater influence on it. For this reason it is known as a market value, or capitalization weighted index. You’ve probably heard of the S&P 500 which is a broader based index of the top 500 US companies. Well the OEX is simply a subset of that. It is a good barometer of the overall mood of the blue chip stocks in the US markets. OEX option trading is simply about trading a derivative product (options) whose values are based on the price action of the underlying $OEX index. It was launched in 1983 as the world’s first option able index and until recent times, has been the most popular index option.

But in recent years its popularity has waned, as other rival products have come onto the market such as the Nasdaq 100 Index Trust, commonly known as the QQQQ or the “cues”. The QQQQ is currently the most liquid and highly traded index in the world. Another use for the OEX over the years has been as a hedging instrument for a portfolio of blue chip stocks. OEX put options have provided valuable protection against falling stock prices for large fund managers. For this reason, OEX put option volume is generally greater than call option volume.

 

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