Trading the Nasdaq-100 Index

The Nasdaq-100 Index (NDX) is an index composed of 100 non-financial companies listed on the Nasdaq stock market. The Nasdaq-100 Index was launched in January 1985. The index is calculated on a method based on proportionate capitalization weight of each of the 100 companies.

QQQQ Stock

And because the calculated value is high to be traded competitively by many stock traders, its value is divided by 40 to represent the Nasdaq-100 Index Tracking Stock (QQQQ). QQQQ is therefore a stock that represents ownership of a long-term unit investment trust which is as good as holding a portfolio of the equity securities that comprise the Nasdaq-100 Index. Rather than owning the 100 stocks that comprises the Nasdaq-100 Index, you can just have a portfolio of a single stock which is QQQQ.

QQQQ is as good as a stock; it pays dividends and has options. Rather than having a portfolio of the 100 stocks that comprises the Nasdaq-100 index, you can instead have QQQQ and benefit from low fees, instant pricing and tax advantages among other attractions.

QQQQ as a stock has options which are just like any other equity options. 100 options of QQQQ make one contract. The minimum options that you can buy or sell are one contract – meaning QQQQ options have a 100 multiplier. If therefore QQQQ is trading at $50, by buying 1 contract you are actually hedging $5000 of QQQQ equity exposure. QQQQ options have very high trading volumes which make them very ideal for many traders as it is very easy to get filled and the bid ask slippage is low compared to other options. The options are American style and can be exercised any time which will result in delivery of QQQQ shares.

Nasdaq-100 Index (NDX) Options

There are options that are based on the full Nasdaq-100 Index, called Nasdaq-100 Index Options. Unlike QQQQ Stock Options which settlement in delivery of QQQQ stock, NASDAQ-100 Index Options are settled in cash. 100 Nasdaq-100 Index Options make one contract. The minimum options that you can buy or sell are one contract – meaning Nasdaq-100 Index Options have a 100 multiplier. If therefore Nasdaq-100 Index is trading at $2000, by buying 1 contract you are actually hedging $200000 of Nasdaq-100 Index equity exposure. Nasdaq-100 Index (NDX) Options ha low trading volumes.

Mini-Nasdaq-100 Index (MNX) Options

Mini-Nasdaq-100 Index (MNX) is 10% of the value of Nasdaq-100 Index (NDX). There are options that are based on Mini-Nasdaq-100 Index called Mini-Nasdaq-100 Index Options. Mini-Nasdaq-100 Index Options are cash settled. If Nasdaq-100 Index is trading at $2000, Mini-Nasdaq-100 Index will be $200. 100 Mini-Nasdaq-100 Index Options make one contract. The minimum options that you can buy or sell are one contract – meaning Mini-Nasdaq-100 Index Options have a 100 multiplier. If therefore Nasdaq-100 Index is trading at $2000, by buying 1 contract you are actually hedging $20000 of Nasdaq-100 Index equity exposure. Mini-Nasdaq-100 Index (MNX) Options has low trading volumes.

Why Choose One in Favour of the Other?

One contract of Nasdaq-100 Index (NDX) Options, 10 contracts of Mini-Nasdaq-100 Index (MNX) Options or 40 contracts of QQQQ Stock Options represents more less the same hedging. Why then should you choose one in favour of the other? You would have to consider many factors such as the commission charges, bid - ask slippage, volume, strike prices spacing, exercise styles, volatility, your financial strength, interest rates, etc., etc.

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