In Mini-Sized Dow Options, the underlying assets are the future contracts of Dow Jones Industrial Average having 5 times multiplier. This implies that each and every option contract trading on the market index will control approximately 5 times the underlying value of the market index.
This provides the option holder greater amount of leverage on their portfolio of investment than the cash index options with reduced cost. The se type of options are traded at the option is traded on the Chicago Board of Trade.
The premium required to be paid on the purchase of a Mini-Sized Dow Option, is almost 5 times of the price quoted. Thus the contract is exposed to the value of 5 times the value of the index. To exemplify, if the price quoted for a security is 200 in relation to the value of 10,200 for the index, the premium turning out on the option is $1,000 (5 x 200) whereas the exposure earning on the contract would be around 51,000 index points (10,200 x 5).
Tags: Chicago Board of Trade, future contracts of Dow Jones Industrial Average, Mini-Sized Dow Options
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