[TheOptionClub.com] Re: Index Settlement Values

 

It is true. You made the rookie mistake of trading a product you did
not fully understand. In this case you did not appreciate the way in
which settlement occurred.

Settlement on options for cash indexes like SPX and RUT are based upon a
calculated settlement value that is not related the daily print for the
index. In fact, over the years I have seen settlement values for the
indexes fall wholly outside of the index's daily range.

The method of calculation varies depending upon the index. If you
intend to trade a cash index, you should really spend some time over at
the CBOE website reading about the individual product so that you better
understand what it is that you are trading.

For what its worth, my experience has convinced me that holding
near-money short options on these cash index products through expiration
is so dangerous that I simply will not do it and am careful to close all
short options out no later than the Wednesday of expiration week.

Christopher Smith
TheOptionClub.com
--- In OptionClub@yahoogroups.com, "metagunny" <justin@...> wrote:
>
> Part of my iron condor one of the short strikes on the SPX was at
1170.
>
> I thought I was home free and it expired OTM last expiration.
>
> I log into my account today, check out the gain\loss, and it shows it
was excercised, and I had to buy it at 1172.95 and sell the shares at
1170.
>
> I call up my broker today, ask him how it was excercised if it was out
of the money at expiration, and he had me go to the CBOE site, and check
out the Index Settlement Value section at
http://cboe.com/data/Settlement.aspx
>
> So, the actual price of the SPX closed at 1159.90 on the 19th, opened
at 1157 on the 22nd, closed at 1165 on the 22nd.
>
> That is a pretty big gap of almost 10 points, but yet I lost money on
the trade and had to buy at 1172.95
>
> He mentioned something about not all stocks in the S&P 500 start
trading right away, so they take a random sampling to get the index
settlement price.
>
> If you didn't know about this, just a warning.
>
> Is this the real story? I believe my broker if it's on the CBOE's
site, and the price matches exactly.
>
> Is this correct?
>

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