How to Trade NDX Options
NDX is the symbol for the NASDAQ 100 index. There are not options available to trade directly against any index. You can trade options on an exchange-traded fund that mirrors the index.
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Instructions
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Enter QQQQ in Yahoo Finance. NDX is tracked by the Powershares QQQ ETF. The symbol is QQQQ. On the quote page for QQQQ select the one-year chart. On the chart page use the "Compare" button and enter ^NDX. The charts should overlay identically.
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Make sure you are authorized to trade options in your online brokerage account. There are several levels of option trading authorization based on your account balance and trading experience. The basic level of option trading includes buying of puts and calls.
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Go to the website for your online brokerage account. In the area where you get stock price quotes enter the symbol QQQQ. Find the area that shows you the option chain for QQQQ and select. Options have a strike price and an expiration date. Call options are in the money if the security price, QQQQ, is above the strike price. Put options are in the money if the security is below the strike price. Expiration time can be from the current month out to two years. Option expiration date is the Saturday following the third Friday of the expiration month.
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Buy call options if you believe that the NDX will go up. Buy put options if you believe the NDX will decrease. In-the-money options are more conservative than out-of-the-money. Select the expiration date for which you believe the NDX will make the move you are predicting.
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Multiply the option price quote to get your cost (each option contract is for 100 shares of QQQQ). The price differential makes a 100-point move in the NDX equal to a $2.45 change in QQQQ. Determine how many contracts of what options you want to purchase, multiply times 100 and add commission to calculate your total cost of investment.
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Place an option buy order through your online brokerage account for the option contracts. A market order will be filled at the ask price. A limit order can be submitted to try for a better purchase price. You are now long, or own, options on QQQQ which directly tracks the NDX index. You can sell your contracts at any time up until market close on the Friday before expiration. If your options are out-of-the-money at expiration they will expire worthless. Options that are in-the-money must be sold or they will be exercised to buy the appropriate number of shares of QQQQ at the strike price.
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Tips & Warnings
Yahoo Finance requires the "^" symbol to look up indexes. Other financial websites may use symbols differently. Buying long calls or puts is the easiest option strategy. Advanced option trading strategies require extensive study and knowledge.
An in-the-money contract must be sold before expiration or it will be automatically exercised. Out-of-the-money options expire worthless; 30 percent of all options contracts expire without value. Options are short-term contracts. Understand the value as related to the expiration date.
