The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone. This is Kirk here again at Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “How do you trade index options?” Well, obviously, this is a loaded question, but I think the gist of trading index options is pretty simple. Index options work and function very similar to equity or regular stock options with one real caveat and the one real caveat is that they are European-styled settlement which means that you cannot convert an index option into physical shares of the index because the index does not exist. It’s not out there. It’s just a figurative number that is trackable. And so, when you go through and trade index options, you really don’t have this worry of early assignment or assignment risk. What happens is that at expiration, the index options convert into a cash-settled value. And so, because they convert to a cash-settled value, basically at expiration, you go through the expiration process, if you have money and the value of the contract is valuabl