OEX, which trades on the Chicago Board Options Exchange (CBOE), is the ticker symbolused to identify Standard & Poor’s 100 index options.
Key Insights
- OEX, which trades on the Chicago Board Options Exchange (CBOE), is the ticker symbol used to identify Standard & Poor’s 100 index options.
- These options were the original standard for index options trading on the domesticstock market. Over time, however, options on the S&P 500 (SPX) have surpassed them in popularity.
- Traders utilize OEXoptions to hedge ors peculate on the performance of the large-cap segment of the stock market.
The Evolution and Use of OEX
OEX options forged the initial path for index options trading in the domestic stock market landscape. Yet, over time, somedisappointing developments unfolded for OEX enthusiasts as popularity shifted towards S&P 500 (SPX) options. This was mostnotably highlighted in 2003 when the CBOE volatility index, or VIX, transitioned from using OEX options to SPX options forits calculation. Investors can still follow the original version via the symbol VXO.
S&P 100 is a meticulous subset of the broader S&P 500 Index, tracking the price performance of the top 100 stocks by market capitalization in the U.S. market. Featuring a capitalization-weighted configuration, itscomponents span a diverse array of industries. Each stock’s influence is directly aligned with its total market value –determined by share price multiplied by the outstanding stock shares.
Although the S&P 100 may not rivalthe fame of the S&P 500, it remains a critical benchmark, especially for asset managers navigating substantial investments in top-tier stocks. To be included in this coveted index, stocks must have accessible options and atleast 50% of their shares available for public trading.
Options Trading: The Right but Not the Obligation
Options grant holders the right, without the obligation, to buy or sell an underlying asset at a predetermined price within aspecified timeframe. For OEX options, this pertains to the right to buy or sell the S&P 100 Index. Due to the intangible nature of an index, these options are cash-settled.
Market participants utilize OEX options both to hedge positions and to speculate on the performance of the prominent large-cap segment of the stock market. Various strategies like vertical spreads and strangles are implemented with OEX options as successfully as they are withindividual stock options.
Example Strategy: Hedging with OEX Put Options
Consider a money manager overseeing a blue-chip stock portfolio but wary of potential short-term market adversities. The manager’s strategic move might involve buying an OEX put option approaching expiration. This acts as a guardrails hould the market suddenly decline. Although the managed portfolio may not precisely mirror all 100 OEX stocks in the same proportions, crafting such a hedge could make strategic financial sense due to the strong correlationbetween the two.
Related Terms: S&P 500, VIX, Vertical Spreads, Strangles.
References
- San Francisco University. “White Paper CBOE Volatility Index”.
- S&P Dow Jones Indices. “S&P U.S. Indices Methodology”, Pages 10-11.
