invest in european options only ?

[ETJ]

"Any idea on the history of why they offer both on that index, just out of curiosity?"

Customer request from what was then the Gateway option income fund.

 

[raf_bcn]

Except OEX which is American.

wow , didnt know that.
but what is the underlying when a short put is early assigned ?

thanks.

 

[Robert Morse]

wow , didnt know that.
but what is the underlying when a short put is early assigned ?

thanks.

CASH

Settlement of Option Exercise:
The exercise-settlement value, OEX, is calculated using the last (closing) reported sales price in the primary market of each component stock on the expiration date or on the day the exercise notice is properly submitted if exercised before expiration. The exercise-settlement amount is equal to the difference between the exercise-settlement value, OEX, and the exercise price of the option, multiplied by $100. Exercise will result in delivery of cash on the business day following the day the exercise notice is properly submitted.

 

[raf_bcn]

CASH

So, that invalidates to sell boxes. Is very dangerous. If you are assigned from your itm short puts your new position will be totally unhedged, a lot of risk to the upside.

IB is requiring almost 0 margin to sell a box in OEX but would have to be a lot more. At the moment you are assigned the margin could go x1000 or more. That doesn't happen with
american options that have an underlying.

 

[Sig]

So, that invalidates to sell boxes. Is very dangerous. If you are assigned from your itm short puts your new position will be totally unhedged, a lot of risk to the upside.

IB is requiring almost 0 margin to sell a box in OEX but would have to be a lot more. At the moment you are assigned the margin could go x1000 or more. That doesn't happen with
american options that have an underlying.

XEO is the same thing in European, if you really, really want a box in that index.

 

[FSU]

Any idea on the history of why they offer both on that index, just out of curiosity?

I was a MM in there for 25 years. Back in the day it was the only game in town for indexes. The SPX was a much smaller product and more institutional. There were probably 400 people in the OEX pit at one time, the largest on the CBOE floor. All the other indexes came later.

People were really getting burned on the early exercise (for me it created a lot of opportunities). There were a lot of requests from firms, retail traders and MM's to do away with the early exercise, which they almost did. Instead they compromised and created the XEO. The majority of the volume stayed with the OEX.

People still sold boxes, they just traded with a premium because of the exercise risk. We had until 3:20:59 ct to exercise options, but for public customers this wasn't a practical deadline, as the firm would need to exercise by this time, so it would be much earlier for them, which put customers at a real disadvantage.

 

[Robert Morse]

I was a MM in there for 25 years. Back in the day it was the only game in town for indexes. The SPX was a much smaller product and more institutional. There were probably 400 people in the OEX pit at one time, the largest on the CBOE floor. All the other indexes came later.

People were really getting burned on the early exercise (for me it created a lot of opportunities). There were a lot of requests from firms, retail traders and MM's to do away with the early exercise, which they almost did. Instead they compromised and created the XEO. The majority of the volume stayed with the OEX.

People still sold boxes, they just traded with a premium because of the exercise risk. We had until 3:20:59 ct to exercise options, but for public customers this wasn't a practical deadline, as the firm would need to exercise by this time, so it would be much earlier for them, which put customers at a real disadvantage.

We only had the XMI on the Amex which also was American style. The large brokers would buy ITM options before an end of day buy program, run the index and then exercise. Easy money. XMI was like the Dow 30.