While stock options derive their value from the performance of a single stock, index options are derivatives of an index. Indexes can have a narrow focus on a specific market sector or they can contain a broader mix of stocks. They’re listed on US option exchanges and regulated by the Securities and Exchange Commission (SEC).
Like stock options, the prices of index options fluctuate according to factors like the value of the underlying security, volatility, time left until expiration, strike price, and interest rates. Unlike stock options, there is no underlying asset with index options, they’re simply bets on the direction that an index will move.
Read the full article here on SoFi:
