Stock index option refers to the right of the buyer to settle the profit and loss with the agreed index and the actual market index within the validity period or expiration of the contract after paying the option fee. As there are no specific stocks for actual delivery, stock index options can only be settled by cash netting.

Stock index option is generated on the basis of stock index futures contract, which gives investors the right to choose whether to buy (sell) the stock index futures contract or not to buy (sell) the stock index futures contract according to the predetermined price. The option buyer pays the option seller an option fee to obtain the option to buy or sell a stock index contract at a certain price level, that is, the stock index level, at or before a certain time in the future. The first common stock index option contract appeared on the Chicago Board Options Exchange in March 1983. The subject matter of this option is the Standard & Poor's 1 stock indexes. Subsequently, the American Stock Exchange and the new york Stock Exchange quickly introduced the index option trading. The index option takes the common stock price index as the target, and its value depends on the value and changes of the stock price index as the target. Stock index options must be delivered in cash. The cash amount of liquidation is equal to the product of the difference between the present value of the index and the strike price and the multiplier of the option.

stock index futures can be short-sold. A prerequisite for stock short selling is that you must first borrow a certain number of shares from others. Foreign countries have strict conditions for stock short selling, but not for index futures trading. In fact, more than half of the index futures transactions include trading positions with short selling. For investors, the most attractive feature of the short-selling mechanism is that when the overall trend of the stock market is expected to decline in the future, investors can take the initiative instead of passively waiting for the stock market to bottom out, so that investors can also make a difference in the falling market.