The Nasdaq 100 Index is comprised of 100 of the largest domestic and international non-financial companies listed on the Nasdaq Stock Market based on market capitalization.

While ETFs and mutual funds are common ways to invest in the Nasdaq-100, the Nasdaq-100 Index Option provides an alternative way to gain exposure to some of the world's leading companies.

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How to Trade Nasdaq 100 Index Options

The Nasdaq 100 index option contract has an underlying value equal to the full value of the level of the Nasdaq 100 Index. The Nasdaq 100 index option trades under the symbol of NDX and has a contract multiplier of $100. For index options trading on Webull, there are five strategies supported:

To profit from a price rise/drop in the index with a bullish/bearish outlook:

• Long call strategy
• Long put strategy

To earn a return on your cash holdings with a moderately bullish outlook:

• Cash secured put strategy

To profit from the underlying security price moving significantly out of a specific range, but unsure of which direction the move will take:

• Long straddle strategy
• Long strangle strategy

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Entering an index option order on Webull is similar to entering an order for stock options. After you enter the options chain page, you will find that the options contracts are grouped into NDX and NDXP. So, what is the difference between the two?

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NDX AM Settlement vs. NDXP PM Settlement

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Pros and Cons

Nasdaq-100 options are options on the actual index value, so they're a bit different from traditional options on the popular Nasdaq-100 ETF (such as Invesco QQQ Trust). These differences can make NDX/NDXP options useful.

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The advantages of index options

• Cash-settled

Index options are "cash settled" against a final settlement value for the index. Cash is delivered instead of the asset to execute and finalize an index option contract. The cash settlement makes it easier to manage options positions. For example, someone with a call option doesn't have to worry about making payment, taking delivery, and then deciding to keep or sell the stock.

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• European style

Most equity/ETF options are American style, meaning they can be exercised at any point before expiration. European style option contracts, by contrastcan only be exercised on the expiration date. Index options are settled in the European style.

But what does this difference really mean for investors? Other things being equal, the American style option can be priced at a higher premium than the European style. This is because sellers take on more risk by not knowing when a buyer might decide to exercise their contract.

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• Tax-favorable treatment

Most investments are subject to taxes, including options trading. However, special tax treatment provisions apply for index option trading.

Profits on exercising equity/ETF options are taxed 100% at the short-term capital gains rate. Index options benefit from a more favorable tax treatment:

● 40% of any gain (or loss) is taxed at the short-term rate; and

● 60% is taxed at the appropriate long-term rate.

This 60/40 setup is applicable even if investors hold index options for less than one year. Therefore, the 60/40 tax treatment provides potentially lower tax liability for a short-term strategy of options trading.

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Lower Volume Statistics

Trading volume helps investors understand the liquidity of an options contract. Compared to the QQQ option, one clear drawback of NDX index options is the lower volume statistics.

Suppose an option has a higher trading volume. In that case, that means there are currently a large number of contracts actively changing hands. That will make it easier for an investor to open or close a position and obtain a favorable price.

Therefore, the lower liquidity in trading NDX index options may incur a higher implicit transaction cost.

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