CBOE Index Workbench

Nasdaq-100 (NDX, MNX, and QQQ)

		Introduction to Nasdaq-100 Index Options and ETF
		Portfolio Management Strategies
		Contract Specifications for Options and ETFs
		Background on the Nasdaq-100 Index
		Price Charts for the Nasdaq-100
		Nasdaq-100 Index Tracking Stock (QQQ)
		Nasdaq-100 Volatility Index (VXN)

For more up-to-date information on Nasdaq-100 options, please visit http://www.cboe.com/ndx.

Introduction to Nasdaq-100 Index Options and ETFs

In recent years interest in the Nasdaq-100 Index has grown tremendously, as evidenced by the increased trading volume in options and exchange-traded funds (ETFs) related to the index.

The Nasdaq-100 Index, launched in January 1985, represents the largest and most active non-financial domestic and international issues listed on The Nasdaq Stock Market® based on market capitalization. The index is calculated under a modified capitalization-weighted methodology.

Nasdaq-100 Index Options
Trading in cash-settled options on the Nasdaq-100 (NDX) index began on the CBOE on February 7, 1994.

Nasdaq-100 Index Tracking Stock represents ownership in the Nasdaq-100 Trust, a long-term unit investment trust established to accumulate and hold a portfolio of the equity securities that comprise the Nasdaq-100 Index®. Its initial market value approximates 1/40 the value of the underlying Nasdaq-100 Index.

Contract	Ticker	Contract Size (if NDX is at 1400)	Settlement	Recent contract volume
Nasdaq-100 Index Options	NDX	The cash-settled NDX index options have a multiplier of 100; thus, if the NDX price level is 1400, an investor could consider hedging $140,000 of equity exposure with one NDX options contract.	Cash-settled	7,323 avg. daily volume in Jan.-Aug. 2001

MNX - CBOE Mini-NDX Index Options	MNX	The MNX index has a price based on 1/10 the value of the NDX index, so, for example, if the NDX index is at 1400, the MNX will be 140. MNX index options have a multiplier of 100; thus, if the MNX price level is 140, an investor could consider hedging $14,000 of equity exposure with one MNX options contract.	Cash-settled	26,617 avg. daily volume in Jan.-Aug. 2001

Nasdaq-100 Index Tracking Stock	QQQ	The initial market value of QQQ generally approximates 1/40 the value of the underlying Nasdaq-100 Index. So for example, if the NDX price level is 1400, the QQQs generally would be expected to be priced around $35.	Delivery of QQQ shares in three business days. All Nasdaq-100 Index Tracking Stock shares are held in book-entry form only at The Depository Trust Company (DTC).	73.5 million QQQ shares in March - May 2001

Options on Nasdaq-100 Index Tracking Stock	QQQ	QQQ options, like all equity options, have a 100 multiplier, so if QQQ is at $35, an investor could consider hedging $3,500 of QQQ equity exposure with one QQQ options contract.	Exercise notices properly tendered on any business day will result in delivery of QQQ shares on the third business day following exercise.	290,592 avg. daily volume in Jan.-Aug. 2001

Index options are subject to tracking error.

In addition, in order to help provide investors with an indication of expected future volatility in NDX options, the CBOE calculates and disseminates prices for the CBOE Nasdaq Volatility Index (ticker symbol: VXNSM) which is based on the implied volatility of NDX options. VXN is constructed so that, at any given time, it represents the implied volatility of a hypothetical at-the-money NDX option with thirty calendar days to expiration.

Portfolio Management Strategies

For some examples of strategies on options related to the Nasdaq-100, please click on any of the following:
NDX Bull Call Spread
QQQ Protective Collar
QQQ Buy-Write
Long MNX Straddle - Volatility Strategy

For more information on some of the many ways in which listed options can help you manage your equity portfolio, please visit:
http://www.cboe.com/strategies/
http://www.cboe.com/protection

Long Call		Long Put
Example: Buy call Market outlook: Bullish Risk: Limited Reward: Unlimited Increase in Volatility: Helps position Time Erosion: Hurts Position		Example: Buy put Market outlook: Bearish Risk: Limited Reward: Limited, but substantiated Increase in Volatility: Helps position Time Erosion: Hurts Position

Call Backspread		Put Backspread
Example: Sell 1 call and buy 2 calls at higher strike Market outlook: Bullish Risk: Limited Reward: Unlimited Increase in Volatility: Typically helps position Time Erosion: Typically hurts Position		Example: Sell 1 put and buy 2 puts at a lower strike Market outlook: Bearish Risk: Limited Reward: Limited, but substantial Increase in Volatility: Typically helps position Time Erosion: Typically hurts Position

Protective Put		Bear Split-Strike Combo
Example: Own 100 shares of stock, buy 1 put Market outlook: Cautiously Bullish Risk: Limited Reward: Unlimited Increase in Volatility: Helps position Time Erosion: Hurts Position Graph shows net stock and options position		Example: Buy 1 put, sell 1 call at higher strike Market outlook: Bearish Risk: Unlimited Reward: Limited, but substantial Increase in Volatility or Time Erosion: Helps or hurts depending on strikes chosen

Contract Specifications for Options and ETFs

Please visit http://www.cboe.com/ndx for contract specifications on any of the following contracts:

NDX - Nasdaq-100 Index Options
MNXSM - CBOE Mini-NDX Index Options
QQQ - Nasdaq-100 Index Tracking Stock
Options on QQQ - Nasdaq-100 Index Tracking Stock

Background on the Nasdaq-100 Index

Launched in January 1985, the Nasdaq-100 Index represents the largest and most active non-financial domestic and international issues listed on The Nasdaq Stock Market® based on market capitalization.

Top Ten Stocks in Three Indexes (in terms of weighting in index)

Nasdaq-100 (NDX)		S&P 100 (OEX)		S&P 500 (SPX)
MSFT	11.3%	GE	7.0%	GE	4.0%

INTC	6.7%	MSFT	5.4%	MSFT	3.1%

QCOM	5.1%	XOM	5.0%	XOM	2.9%

CSCO	4.1%	PFE	4.3%	PFE	2.4%

AMGN	3.4%	C	3.8%	C	2.2%

ORCL	2.8%	WMT	3.7%	WMT	2.1%

DELL	2.3%	AIG	3.5%	AIG	2.0%

MXIM	2.1%	INTC	3.1%	INTC	1.8%

AMAT	1.8%	JNJ	3.0%	JNJ	1.7%

LLTC	1.8%	IBM	3.0%	IBM	1.7%

	41.4%		41.9%		23.7%

Source: Bloomberg, Sept. 10, 2001 (unofficial information)

For a list of all 100 components of the Nasdqaq-100, please visit http://www.cboe.com/OptProd/index_comp.asp

The Nasdaq-100 Index is calculated under a modified-capitalization-weighted methodology. The methodology is expected to retain in general the economic attributes of capitalization weighting while providing enhanced diversification. To accomplish this, Nasdaq will review the composition of the Nasdaq-100 Index on a quarterly basis and will adjust the weightings of Index components using a proprietary algorithm if certain pre-established weight distribution requirements are not met.

Eligibility Criteria

To be eligible for inclusion in the Nasdaq-100 Index, a common security must be traded on the Nasdaq National Market tier of The Nasdaq Stock Market and meet the several criteria, including the following:

the security must be of a non-financial company
only one class of security per issuer is allowed
the security may not be issued by an issuer currently in bankruptcy proceedings
the security must have average daily trading volume of at least 100,000 shares
if the security is of a foreign issuer, the company must have a world-wide market value of at least $10 billion, a U.S. market value of at least $4 billion, and average trading volume on The Nasdaq Stock Market of at least 200,000 shared per day; in addition, foreign securities must be eligible for listed-options trading.

Price Charts for the Nasdaq-100

Year-end Prices

Year	Dow DJX	S&P 100 OEX	S&P 500 SPX	Russell 2000 RUT	Nasdaq-100 NDX	MNX
1990	26.34	155.22	330.22	132.2	200.53	20.05

1991	31.69	192.78	417.09	189.94	330.85	33.09

1992	33.01	198.32	435.71	221.01	360.18	36.02

1993	37.54	214.73	466.45	258.59	398.28	39.83

1994	38.34	214.32	459.27	250.36	404.27	40.43

1995	51.17	292.96	615.93	315.97	576.23	57.62

1996	64.48	359.99	740.74	362.61	821.36	82.14

1997	79.08	459.94	970.43	437.02	990.80	99.08

1998	91.81	604.03	1229.23	421.96	1836.01	183.60

1999	114.97	792.83	1469.25	504.75	3707.83	370.78

2000	107.88	686.45	1320.28	483.53	2341.70	234.17

Yearly Price Changes

Year	Dow DJX	S&P 100 OEX	S&P 500 SPX	Russell 2000 RUT	Nasdaq-100 NDX	MNX
1991	20.3%	24.2%	26.3%	43.7%	65.0%	65.0%

1992	4.2%	2.9%	4.5%	16.4%	8.9%	8.9%

1993	13.7%	8.3%	7.1%	17.0%	10.6%	10.6%

1994	2.1%	-0.2%	-1.5%	-3.2%	1.5%	1.5%

1995	33.5%	36.7%	34.1%	26.2%	42.5%	42.5%

1996	26.0%	22.9%	20.3%	14.8%	42.5%	42.5%

1997	22.6%	27.8%	31.0%	20.5%	20.6%	20.6%

1998	16.1%	31.3%	26.7%	-3.4%	85.3%	85.3%

1999	25.2%	31.3%	19.5%	19.6%	102.0%	102.0%

2000	-6.2%	-13.4%	-10.1%	-4.2%	-36.8%	-36.8%

Nasdaq-100 Index Tracking Stock (QQQ)

The introduction of the Nasdaq-100 Index Tracking Stock (QQQ) allows investors to purchase a share of stock in order to invest in the largest and most actively traded companies on The Nasdaq Stock Market-the companies of the Nasdaq-100 Index. Nasdaq-100 Index Tracking Stock trades under the ticker symbol "QQQ." QQQ average daily volume was an impressive 73.5 million shares in March - May 2001. With Nasdaq-100 Index Tracking Stock, you can buy or sell shares in the collective performance of the Nasdaq-100 Index in a single transaction - just as you buy or sell shares of individual stocks. It's a one-investment portfolio that gives you ownership in the 100 stocks of the Nasdaq-100 Index. And because Nasdaq-100 Index Tracking Stock trades like stock, you can buy them on margin, sell short or hold your shares for the long term. When you purchase Nasdaq-100 Index Tracking Stock, you're investing in the Nasdaq-100 Trust, a unit investment trust that holds shares of the companies in the Nasdaq-100 Index. The Trust is designed to closely track the price and yield performance of the Index - so you can expect your Nasdaq-100 Index Tracking Stock to move up or down in value when the Index moves up or down.

The initial market value of QQQ generally approximates 1/40 the value of the underlying Nasdaq-100 (NDX) Index. So for example, if the NDX price level is 1400, the QQQs generally would be expected to be priced around $35. QQQs may be bought and sold at intraday prices throughout the trading day - something you can't do with conventional index mutual funds that are generally purchased or redeemed only at an end-of-day closing price related to net asset value. The pricing of Nasdaq-100 Index Tracking Stock is continuous, subject to any trading halts, during exchange trading hours. The portfolio of Nasdaq-100 Index stocks held by the Nasdaq-100 Trust is passively (not actively) managed, which means the Trust does not try to outperform the Nasdaq-100 Index, just track it closely. And because this tracking requires less costly trading and less portfolio turnover than actively managed portfolios, costs on Nasdaq-100 Index Tracking Stock should be lower than on conventional funds that are actively managed.

Because the Nasdaq-100 Trust portfolio is designed to closely track the Nasdaq-100 Index, it is less likely than actively managed portfolios to experience the trading of securities, which can create potentially high capital gains distributions. The Nasdaq-100 Trust will generally only sell securities to reflect changes in the composition of the Index and to pay Trust expenses. In addition, since Nasdaq-100 Index Tracking Stock is sold through exchange trading, they also will generally not require the sale of stocks and generation of capital gains that is required by
conventional index funds in effecting cash redemptions.

An investment in QQQs should be made with an understanding that the Nasdaq-100 Trust will not be able to replicate exactly the performance of the Index because the total return generated by the securities held in the Trust will be reduced by transaction costs incurred in adjusting the actual balance of the securities and other Trust expenses, whereas such transaction costs and expenses are not included in the calculation of the Index. It is also possible that for short periods of time, the Trust may not fully replicate the performance of the Index due to the temporary unavailability of certain Index securities in the secondary market or due to other extraordinary circumstances. Such events are unlikely to continue for an extended period of time because the trustee of the Trust is required to correct such imbalances by means of adjusting the composition of the Trust.

Before investing in QQQs, you should read the Nasdaq-100 (QQQ) Prospectus. For more on QQQ options strategies, click on one of the two examples below.
QQQ Covered Write
QQQ Collar

Nasdaq-100 Volatility Index (VXNSM)

The CBOE Nasdaq Volatility Index (ticker symbol: VXN) is the benchmark of "tech stock" volatility based on the implied volatility of Nasdaq-100 Index (NDX) options. Calculated using the same methodology as the CBOE Market Volatility Index VIX Index, VXN is constructed so that, at any given time, it represents the implied volatility of a hypothetical at-the-money NDX option with thirty calendar days to expiration. The CBOE Nasdaq Volatility Index is calculated and disseminated every 60 seconds throughout the trading day beginning at 8:45 a.m. (Chicago time) and ending at 3:00 p.m. Historical index levels are available from January 1995.

For more information on VXN, please visit http://www.cboe.com/MktData/vix.asp
For an example of a strategy that takes into account volatility levels, please see:
Long MNX Straddle - Volatility Strategy

Options involve risk and are not suitable for all investors. Prior to buying or selling options, a person must receive a copy of Characteristics and Risks of Standardized Options, which is available from The Options Clearing Corporation, One North Wacker Dr., Suite 500, Chicago, IL 60606, or by calling 1-888-OPTIONS.

Please note that futures on the CBOE Volatility Index® (VIX®) were introduced in 2004 after the methodology for VIX was changed; please visit www.cboe.com/vix for volatility updates that might not be reflected on this CD-ROM.

This discussion is designed to assist individuals in learning how options work and in understanding various options strategies. This discussion is for educational purposes only and is not intended to provide investment advice. Commissions, taxes and transaction costs generally are not included in the strategy discussions, but can affect final outcome and should be considered. Please contact a tax advisor for the tax implications involved in these strategies.
This discussion has been prepared solely for informational purposes, based upon information generally available to the public from sources believed to be reliable, but no representation or warranty is given with respect to its accuracy or completeness. No statement herein should be construed as a recommendation to buy or sell a security or to provide investment advice. Any profit/loss diagrams refer only to approximate results at expiration. Past performance is no guarantee of future results.

S&P 100® and S&P 500® are registered trademarks of the McGraw-Hill Companies, Inc., and are licensed for use by the Chicago Board Options Exchange, Inc. ("CBOE"). The Russell 2000® Index is a registered trademark of Frank Russell Company. The Nasdaq 100® is a registered mark of The Nasdaq Stock Market, Inc. "Dow Jones SM", "Dow Jones Industrial AverageSM", "Dow Jones Transportation AverageSM," and "Dow Jones Utility AverageSM" are service marks of Dow Jones & Company, Inc. and have been licensed for certain purposes by the CBOE. iSharesSM is a servicemark of Barclays Global Investors. The Goldman Sachs Technology Indexes are the property of Goldman, Sachs & Co. and have been licensed to the CBOE in connection with the trading of options based upon the indexes. Dow Jones & Co., The Nasdaq Stock Market, Goldman Sachs, and McGraw-Hill make no warranties and bear no liability in regard to the trading of index options.VIX®, CBOE Volatility Index® LEAPS®, FLEX®, FLexible EXchange® and OEX® are registered trademarks and Long-term Equity AnticiPation SecuritiesTM and SPXTM are trademarks of the Chicago Board Options Exchange, Inc.

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