Alpha index relative value options

New “relative-value” options start trading this week. I am not sure if I mentioned them in class, but these essentially measure the “relative” performance of one stock against an index. For instance, if you think that Apple will outperform the SPY, then these AVSPY (read Apple versus SPY) options have some appeal. Note that these options can profit in up or down markets, i.e. Apple can go up or down, it just has to go up more than SPY or down less than SPY (for it to out-perform in  relative terms). Performance is based on total returns (price change and dividends) over the period until expiration, the options are European and are cash-settled.

Apple vs SPY started trading yesterday. Google vs. SPY starts tomorrow. With Google near its 200-day and SPY near its 50-day, you might think that Google outperforms SPY even if both trend lines turn south! These options come to you courtesy of the Nasdaq, developed in conjunction with Vanderbilt finance professor Bob Whaley who dreamt up the VIX so many years ago. Full details are here. I  LIKE. It seems better than playing angry birds!