The Philadelphia Stock Exchange said yesterday that it would begin trading options products based on the Russell family of benchmark stock indexes.
Index options are bets on the direction of a particular index, or indicator of the value of a group of underlying securities.
Yesterday, the Philadelphia exchange began trading options based on the Russell 2000 index and a more affordable version called the reduced value 2000, which is based on a fraction of that index's value.
The Russell 2000, published by the Frank Russell Co., measures the performance of small companies.
"PHLX is positioned to grow Russell broad-based index options as an investment and trading tool for retail and institutional accounts," said Daniel Carrigan, exchange vice president of new products.
Investors would use the Russell 2000 index options in the hope of guessing correctly which way the index would trade - up or down. An option is the right to buy or sell a specific amount of a certain investment at a specific time.
In this case, a trader would bet on the direction of the stocks of a group of small companies.
The Chicago Board Options Exchange Inc. already trades these products, which are most suitable for institutional investors or for experienced individuals with a high net worth.
Greg Rogers, a principal on the trading desk at Aronson, Johnson & Ortiz L.P., a Center City institutional investment manager, said individual investors interested in index products might be better off looking at exchange-traded funds, or ETFs, which are funds that track an index but trade like a stock.
Because ETFs behave more like a stock, individuals may find they understand them more easily than options products, he said.