Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Mini-Sized Dow Options

What it is:

Mini-sized Dow options are leveraged option contracts that use the Dow Jones Industrial Average as the underlying asset.

How it works (Example):

Bought and sold on the Chicago Board of Trade (CBOT), mini-sized Dow options have a leverage ratio of 5:1. In other words, they leverage five times the value of their underlying asset. As such, they cost five times their face value and experience movements in value five times greater than those of the Dow itself.

This means that a mini-sized Dow option priced at $100 would actually cost $500. In addition, a 100-point rise in the Dow Jones Industrial Average would actually be experienced by the option as a 500-point rise.

Why it Matters:

Mini-sized Dow options are ideal for those with strong convictions about future trends in the Dow Jones Industrial Average. Investors should understand that while these options amplify index gains, they also amplify losses.