Index Option

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Definition: Index Option

An index option is a financial derivative instrument in which the owner has a right to trade a collection of stocks at a pre-decided price after a fixed duration.

The stocks traded in this option are the indexes like S&P 500 index, Dow & Jones index, Nasdaq index, etc. and this is the difference between index options and a standard option.

The transaction in an index option takes place on cash settlement basis.

 

 

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