NDX June contract settlement value

T

theTaoTrader

The NDX index last Friday had a high of 1550.63 and low of 1532.56. NDX June contract settlement value however is 1553.96 (CBOE).

Is the settlement price the average value of the first five minutes last Friday? How can the average be higher than the High of the day? What am I missing here?
 
"The exercise-settlement value, NDS, is calculated based on a volume-weighted average of prices reported in the first five minutes of trading for each of the component securities on the last business day (usually a Friday) before the expiration date. If a stock in the index does not open on the day on which the exercise-settlement value is calculated, the last sales price reported to The Nasdaq Stock Market will be used in calculating the exercise-settlement value..." www.cboe.com/Products/indexopts/ndx_spec.aspx

Note that the value is calculated based on the prices of components (i.e. individual stocks) and not based on the index value. Hence, the difference.
 
Quote from MTE:

"The exercise-settlement value, NDS, is calculated based on a volume-weighted average of prices reported in the first five minutes of trading for each of the component securities on the last business day (usually a Friday) before the expiration date. If a stock in the index does not open on the day on which the exercise-settlement value is calculated, the last sales price reported to The Nasdaq Stock Market will be used in calculating the exercise-settlement value..." www.cboe.com/Products/indexopts/ndx_spec.aspx

Note that the value is calculated based on the prices of components (i.e. individual stocks) and not based on the index value. Hence, the difference.
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I was reading the contract specification you quoted here but was not able to fully understand that it means the settlement value will be different from the index. Now I understand it but this doesn't make much sense to me as what's bad about just use the index? Would that make thing easier and simpler? Was it because the NDX index was not around when the options were first offered?
 
Other index options settle the same way, e.g. SPX.

It's a very inconvenient practice to say the least, but there's nothing you can do about it.
 
Quote from MTE:

Other index options settle the same way, e.g. SPX.

It's a very inconvenient practice to say the least, but there's nothing you can do about it.
More...

Thanks for the clarification. I was always puzzled by this.
 
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