SIE practice questionhardOptions — Index Options
A key feature of index options that differs from equity options is that index options:
- ACan only be purchased, never written
- BSettle in cash rather than by delivery of securities✓ Correct answer
- CAre not regulated by the OCC
- DHave no expiration date
Explanation
Why B — Settle in cash rather than by delivery of securities
Index options settle in CASH, not through physical delivery of securities. When exercised, the holder receives the intrinsic value in cash. This makes sense because delivering all stocks in an index would be impractical. Most index options are also European-style (exercisable only at expiration). They ARE issued/guaranteed by the OCC and do have expiration dates.
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