They give an investor the right to buy or sell the underlying stock index for a defined time period.
A stock index option provides the right to trade a specific stock index at a specified price by a specified expiration date. A call option on a stock index gives you the right to buy the index, and a put option on a stock index gives you the right to sell the index.
Options on stock indexes are similar to exchange-traded funds ETFsthe difference being that ETF values change throughout the day whereas the value on stock index options change at the end of each trading day. If an index option is exercised before the close of the market, the buyer of the option will in- or out-of-the-money for an additional amount equal to the difference between the closing price and opțiunea index dow jones exercise price.
If the market closes above the intra-day exercise price, then the option will accrue an additional loss, and if the market closes below the intra-day exercise price, the option will accrue an additional gain. For this reason, index options are typically closed out after the market has closed.