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Ask the Institute

DATE: February 11, 2013


Can you explain the key difference between options on Exchange-Traded Funds and options on Indexes?

Exchange-Traded Funds, commonly called ETFs, convert into stock positions if they are exercised or assigned just like standard stock options. When an ETF is in-the-money at expiration, exercise or assignment causes you to buy or sell shares of the underlying stock, also known as settling to stock. Unlike ETFs, Index options convert into cash - not stock - if they are exercised or assigned. When an Index option is in-the-money at expiration, you would receive a cash amount equal to the option's intrinsic value. To learn more about other key differences between ETFs and Index options, view this week's segment of "Ask the Institute."

CBOE Volatility Index (VIX)