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Index Contracts

In addition to Exchange Trade Options there are Stock Market Index Options that were introduced in 1983. Today index options are very actively traded instruments and it is this area of the market that Optioneer System is involved.

Index Options are similar to listed share options having many of the same potential benefits and risks. However, there are important differences between the two. The main difference is the potential ability to profit from (losses may also occur), or hedge against, over-all stock market volatility, as opposed to changes in individual share prices.*

The options that Optioneer recommends for Australian customers are the S&P 500, DOW-Mini, Nasdaq and the Russell 2000 options. All of these indexes are high volume markets which are helpful when setting and exiting trades.

Optioneer trades the options on the future of the index. Futures contracts run for three months, maturing in March, June, September, and December. The option series associated with the respective "futures" contracts are the individual months, e.g. January, February, & March for the "March Future", April, May & June for the "June Future", etc. It is the option series of a particular futures contract that Optioneer trades, and the expiration date is always the third (3rd) Friday of each month.

The settlement or closing price for a futures contract is determined by what is known as fair value. In simplistic terms, fair value equates to the ninety (90) day "bank bill" rate. A good analogy is if you have money in the bank, you expect the receive interest on your money-fair value. At expiration of the futures contract the settlement price and physical (cash) price are the same.

Multiple contracts can be taken out on one position, and an increasing number of positions can always be opened, subject to conditions imposed by the broker.

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