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What Is OEX?
Let me tell you directly: OEX is the ticker symbol that identifies Standard & Poor's 100 index options, and it trades on the Chicago Board Options Exchange (CBOE). If you're looking into index options, this is where it starts.
Key Takeaways
You need to know that OEX serves as the identifier for these S&P 100 index options on the CBOE. It was the original go-to for index options trading in the U.S. stock market, but over the years, S&P 500 options (SPX) have taken over in terms of popularity. Traders like you use OEX options to hedge against or speculate on how the large-cap part of the stock market performs.
Understanding OEX
When I think about OEX, I recall it was the pioneer in index options trading domestically. Eventually, SPX options became more popular. Something that bothered OEX fans was the shift in 2003 when the CBOE volatility index, the VIX, switched from using OEX to SPX options for its calculation—you can still check the old version under VXO if you're interested.
The Standard & Poor's 100 index itself is a subset of the broader S&P 500, focusing on the 100 largest U.S. stocks by market capitalization. It's capitalization-weighted, meaning each stock's influence depends on its total market value—share price multiplied by outstanding shares. These stocks come from various industries, making the index a solid stand-in for overall U.S. corporate performance.
Even if it's not as hyped as the S&P 500, the OEX remains a key benchmark for asset managers dealing with big blue-chip investments. To get included, a stock needs available options and at least 50% of its shares must be publicly tradable.
Options Trading
Options trading with OEX means you get the right—but not the obligation—to buy or sell the underlying S&P 100 Index at a set price by a certain date. Since the index isn't something physical, these options settle in cash.
You can use OEX options to hedge or speculate on large-cap stock performance. Strategies work here just like with individual stocks—think vertical spreads or strangles.
For instance, if you're a money manager with a portfolio of blue-chip stocks and you're concerned about short-term market dips, you could buy an OEX put option expiring soon as protection. Your portfolio might not match the exact OEX composition, but if the correlation is strong, it could still serve as an effective hedge.
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