S&P 100 Index Options

S&P 100 index options are option contracts in which the underlying value is based on the level of the S&P 100, a capitalization-weighted index of 100 leading U.S. stocks which are among the largest and most established companies in the S&P 500 index that have exchange-listed options.

The S&P 100® index option contract has an underlying value that is equal to the full value of the level of the S&P 100 index. The S&P 100® index option trades under the symbol of OEX and has a contract multiplier of $100.

Product NameSymbolUnderlying ValueContract MultiplierExercise Style
S&P 100® OptionsOEXFull Value of S&P 100$100
(Full Contract Specs)
American
S&P 100® (European-style Exercise) OptionsXEOFull Value of S&P 100$100
(Full Contract Specs)
European

How to Trade S&P 100 Index Options

If you are bullish on the S&P 100, you can profit from a rise in its value by buying S&P 100® (OEX) call options. On the other hand, if you believe that the S&P 100 index is poised to fall, then OEX put options should be purchased instead.

The following example depict a scenario where you buy a near-money OEX call option in anticipation of a rise in the level of the S&P 100 index. Note that for simplicity's sake, transaction costs have not been included in the calculations.

Example: Buy OEX Call Option (A Bullish Strategy)

You observed that the current level of the S&P 100 index is 385.48. The OEX is based on the full value of the underlying S&P 100 index and therefore trades at 385.48. A near-month OEX call option with a nearby strike price of 390 is being priced at $25.70. With a contract multiplier of $100.00, the premium you need to pay to own the call option is thus $2,570.00.

Assuming that by option expiration day, the level of the underlying S&P 100 index has risen by 15% to 443.30 and correspondingly, the OEX is now trading at 443.30 since it is based on the full value of the underlying S&P 100 index. With the OEX now significantly higher than the option strike price, your call option is now in the money. By exercising your call option, you will receive a cash settlement amount that is computed using the following formula:

Cash Settlement Amount = (Difference between Index Settlement Value and the Strike Price) x Contract Multiplier

So you will receive (443.30 - 390.00) x $100 = $5,330.20 from the option exercise. Deducting the initial premium of $2,570.00 you paid to buy the call option, your net profit from the long call strategy will come to $2,760.20.

Profit on Long OEX 390 Call Option When S&P 100 at 443.30
Proceeds from Option Exercise=Cash Settlement Amount
=(Index Settlement Value - Option Strike Price) x Contract Size
=(443.30 - 390.00) x $100
=$5,330.20
 
Investment=Initial Premium Paid
=$2,570.00
 
Net Profit=Proceeds from Option Exercise - Investment
=$5,330.20 - $2,570.00
=$2,760.20
 
Return on Investment=Net Profit / Investment
=107%

In practice, it is usually not necessary to exercise the index call option to take profit. You can close out the position by selling the OEX call option in the options market. Proceeds from the option sale will also include any remaining time value if there is still some time left before the option expires.

In the example above, as the option sale is performed on expiration day, there is virtually no time value left. The amount you will receive from the OEX option sale will still be equal to it's intrinsic value.

Limited Downside Risk

One notable advantage of the long S&P 100® call strategy is that the maximum possible loss is limited and is equal to the amount paid to purchase the OEX call option.

Suppose the S&P 100 index had dropped by 15% instead, pushing the OEX down to 327.66, which is way below the option strike price of 390. Now, in this scenario, it would not make any sense at all to exercise the call option as it will result in additional loss. Fortunately, you are holding an option contract, and not a futures contract, and so you are not obliged to anyway. You can just let the option expire worthless and your total loss will simply be the call option premium of $2,570.00.

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