The OEX is Wall Street shorthand for the Standard & Poor’s (S&P) 100 stock index. This index is a subset of the S&P 500 and includes 100 of the largest and most liquid stocks traded on U.S. markets. The OEX is utilized primarily for options trading on the Chicago Board Options Exchange (CBOE) and futures trading on the Chicago Mercantile Exchange (CME). It serves as a key indicator for the overall performance and health of the large-cap segment of the U.S. equity market.
Historical Context
The OEX was introduced in 1975 by Standard & Poor’s. Its creation was aimed at providing a significant benchmark for portfolio performance measurement and creating a foundation for trading derivatives.
Key Features of the OEX
Composition and Selection Criteria
The index includes 100 leading U.S. stocks across various sectors. These stocks are selected based on market capitalization, liquidity, and sector representation.
Trading Platforms
- CBOE (Chicago Board Options Exchange): Options on the OEX are traded here, providing investors opportunities to hedge or speculate on market movements.
- CBOT (Chicago Board of Trade): Futures contracts based on the OEX index are traded on this exchange.
- CME (Chicago Mercantile Exchange): Offers futures contracts for extensive trading hours across various financial products, including OEX futures.
OEX Options and Futures
Options
- OEX Options: These are call and put options with the S&P 100 as the underlying asset. They grant traders the right, but not the obligation, to buy or sell the index at a predetermined price within a specified period.
Futures
- OEX Futures: These contracts involve buying or selling the index at a set price at a future date. OEX futures are traded predominantly on the CME.
Applicability and Uses
Hedging
Investors and portfolio managers use OEX options and futures to hedge against adverse market movements. This is particularly beneficial for protecting portfolios comprised of large-cap stocks.
Speculation and Income Generation
Traders utilize OEX options to speculate on market direction or to generate additional income through strategies such as writing covered calls.
Comparison with Other Indices
- S&P 500 (SPX): While the OEX includes 100 stocks, the S&P 500 comprises 500 stocks, all of which are part of the larger sample the OEX is drawn from.
- NASDAQ-100 (NDX): This index includes 100 of the largest non-financial companies listed on the NASDAQ stock exchange, contrasting with the more diverse S&P 100.
Related Terms
- Options: Financial derivatives granting the right but not the obligation to execute a trade at a set price.
- Futures: Contracts obliging the purchase or sale of assets at a future date at a specified price.
- S&P 500: A broader index encompassing 500 of the largest U.S. companies, providing a broader market view.
FAQs
How is the OEX calculated?
What sectors are included in the OEX?
Can retail investors trade OEX options?
References
- Chicago Board Options Exchange (CBOE)
- Chicago Board of Trade (CBOT)
- Chicago Mercantile Exchange (CME)
- Standard & Poor’s - S&P Dow Jones Indices
Summary
The OEX is a key benchmark for the U.S. stock market, focusing on 100 of the most influential companies. Traded heavily on the CBOE and CME, the index provides ample opportunities for hedging, speculation, and portfolio diversification. Understanding the OEX and its applications is essential for traders and investors aiming to navigate large-cap market movements effectively.
This comprehensive guide ensures a well-rounded understanding of the OEX, its applications, and its importance in the financial markets.
