Equity Index Options

Index options come up when an investment manager who holds stocks wants protection against a fall, or when a securities firm's staff set the margin amount for a customer.

Rights to buy and sell the Nikkei Stock Average

An equity index option is an option whose underlying asset is an equity index. In Japan, Nikkei 225 Options are listed on Osaka Exchange. They trade the right to buy the Nikkei Stock Average (a call option, or call) or to sell it (a put option, or put) at the strike price on a set future date (the SQ day, the business day after the last trading day)¹². Trading began on June 12, 1989³. How calls and puts work in general is covered in Option Basics: Calls and Puts.

Consider a hypothetical example in which the Nikkei Stock Average is at 40,000 yen and you buy one put with a strike price of 39,000 yen for a premium of 400 yen. Each contract has a multiplier of 1,000 on the premium⁴, so the buyer pays 400 yen × 1,000, or 400,000 yen.

Futures on the same Nikkei Stock Average are covered in Equity Index Futures.

Settlement at expiry against the SQ value

Nikkei 225 Options are European options that can be exercised only on the SQ day. When an option is exercised, the parties pay or receive the difference between the strike price and the special quotation (SQ value)⁵⁶. The SQ value is a special value of the Nikkei Stock Average, calculated from the opening prices of its component stocks on the SQ day². Neither the index itself nor any shares change hands.

Positions not closed out by the end of trading on the last trading day are treated as follows at expiry. If an option is in the money (exercising it would pay a difference), it is exercised automatically unless the holder gives up the right. If it is out of the money (exercising it would pay nothing), it is not exercised automatically and the position expires⁶. The buyer of a put receives "(strike price − SQ value) × 1,000 × number of contracts," and the profit or loss is this amount minus the premium paid⁷. If you hold the put from the example above until the SQ day, the results are as follows.

If the SQ value is 36,000 yen, the difference is (39,000 − 36,000) × 1,000, or 3 million yen. After the 400,000-yen premium, the profit is 2.6 million yen. If the SQ value is at or above the 39,000-yen strike, exercising pays nothing, so the right lapses and the 400,000 yen you paid is your loss⁷. The profit or loss is zero at 38,600 yen, the strike price minus the premium. This price is called the break-even point.

Figure description

Profit and loss at expiry of a Nikkei 225 Options put with a strike price of 39,000 yen, bought for a premium of 400 yen. The horizontal axis is the SQ value, and the vertical axis is the profit or loss including the premium. The profit or loss for one contract is 1,000 times this. At SQ values of 39,000 yen or more, the put is not exercised and the loss stays at 400 yen. Below 39,000 yen, the profit or loss rises by 1 yen for each 1-yen fall in the SQ value. It is 0 at 38,600 yen (the break-even point) and a profit of 2,600 yen at 36,000 yen. The loss is limited to the 400-yen premium paid.

The seller of the put has exactly the opposite profit or loss. The lower the SQ value falls, the larger the seller's loss, so the seller posts margin. The buyer, whose loss is limited to the premium paid, does not need to post margin⁸.

Strike price intervals and contract size

For Nikkei 225 Options, each contract month has a series of options whose strike prices differ by a fixed interval. When trading in a new contract month starts, the strikes are centered on the multiple of 250 yen nearest to the previous business day's closing value of the Nikkei Stock Average, with 16 strikes above and 16 below at 250-yen intervals. After that, except in the three nearest contract months, strikes are added as the index's closing value moves, so that 16 strikes stay above and below at 250-yen intervals. In the three nearest contract months, strikes are added so that 24 stay above and below at 125-yen intervals⁹.

The last trading day is the business day before the second Friday of each month (moved earlier if that Friday is a holiday)².

Closing out before the SQ day

You can also close a position with an offsetting trade instead of waiting for the SQ day. A buyer sells (a resale), a seller buys back (a buyback), and the difference in premiums is paid or received⁷. Consider a hypothetical example in which you buy the put from the example above for 400 yen. If the Nikkei Stock Average falls so that the premium rises to 550 yen and you resell, your profit is (550 − 400) × 1,000, or 150,000 yen. If instead the index rises and the premium falls to 250 yen, reselling gives a loss of 150,000 yen.

The premium changes a lot with the level of the Nikkei Stock Average relative to the strike price. It also depends on the number of days to expiry and on volatility (how much the index moves)¹¹.

Buying puts to protect against falling stock prices

Holders of stocks or funds sometimes buy puts to protect against a fall in value (to hedge)¹⁴. Holding the underlying asset and buying a put on it is called a protective put.

Consider a hypothetical example in which the Nikkei Stock Average is at 40,000 yen and you hold 40 million yen of stocks. Assume your stocks rise and fall by the same percentage as the Nikkei Stock Average. You buy one put, the same as in the first section's example: a strike price of 39,000 yen and a premium of 400 yen. Your stocks are worth 1,000 times the Nikkei Stock Average, so one contract matches them exactly. The profit or loss at each SQ value is as follows.

If the SQ value falls to 36,000 yen, your stocks lose 4 million yen, but the put makes 2.6 million yen, so the combined loss is 1.4 million yen. Below 39,000 yen, however far the SQ value falls, the combined loss stops at 1.4 million yen (the 1 million yen fall down to the strike price plus the 400,000-yen premium). If instead the SQ value rises to 44,000 yen, your stocks gain 4 million yen, but the put is not exercised and the 400,000-yen premium is lost, so the combined profit is 3.6 million yen. Your loss from a fall is capped. In exchange, at SQ values of 39,000 yen or more, your result is 400,000 yen (the premium) worse than if you held the stocks alone.

This example assumes your stocks move in line with the Nikkei Stock Average. If the stocks you actually hold move differently from the index, the put's profit or loss does not cover that difference.

Equity index options on Osaka Exchange

Besides the Nikkei Stock Average, Osaka Exchange lists options on other Japanese equity indices. The Japan Exchange Group product list, updated on April 13, 2026, shows the following¹⁵.

Nikkei 225 mini Options are smaller options that Osaka Exchange calls "mini-sized" (our translation), and trading in them began on May 29, 2023¹. TOPIX Options and JPX-Nikkei Index 400 Options, like Nikkei 225 Options, are European and can be exercised only on the SQ day⁵.

Notes

1. Japan Exchange Group, "商品概要" (Product overview), Nikkei 225 Options (in Japanese): the text of the "商品概要" (Product overview) section and the "日経225ミニオプション" (Nikkei 225 mini Options) item. ↩ ↩²

2. Japan Exchange Group, "制度概要" (Contract specifications), Nikkei 225 Options (in Japanese), the "取引最終日" (Last trading day), "SQ日" (SQ day), "権利行使日" (Exercise date) and "オプション清算数値（SQ値）" (Option settlement value (SQ value)) rows. The contract specifications call the SQ value "オプション清算数値（SQ値）" (option settlement value (SQ value)). ↩ ↩² ↩³

3. Japan Exchange Group, "制度概要" (Contract specifications), Nikkei 225 Options (in Japanese; updated February 16, 2026; English version: "Contract Specifications", https://www.jpx.co.jp/english/derivatives/products/domestic/225options/01.html), the "取引開始日" (Trading start date) row. ↩

4. Japan Exchange Group, "制度概要" (Contract specifications), Nikkei 225 Options (in Japanese), the "取引単位" (Contract unit) row. ↩

5. Japan Exchange Group, "よくあるご質問" (Frequently asked questions), futures and options (in Japanese), Q9 "【OSE】権利行使はいつできますか。" (When can options be exercised?). ↩ ↩²

6. Japan Securities Clearing Corporation, "指数オプション取引の決済方法" (Settlement methods for index option trading, in Japanese). ↩ ↩² ↩³ ↩⁴

7. Osaka Exchange, "決済方法" (Settlement methods), Kitahama Investment School, options (in Japanese): "反対売買による決済" (Settlement by offsetting trades), "SQ値による決済" (Settlement by SQ value) and "権利放棄（権利消滅）" (Abandonment of rights (lapse of rights)). ↩ ↩² ↩³

8. Osaka Exchange, "オプション取引とは" (What is option trading?), Kitahama Investment School (in Japanese): "オプションの買い手の特徴" (Features of the option buyer) and "オプションの売り手の特徴" (Features of the option seller). ↩

9. Japan Exchange Group, "制度概要" (Contract specifications), Nikkei 225 Options (in Japanese), "新規設定" (New setting) and "追加設定" (Additional setting) in the "権利行使価格" (Exercise price) row. The source uses the term "権利行使価格" (exercise price). ↩

10. Japan Exchange Group, "制度概要" (Contract specifications), Nikkei 225 Options (in Japanese), the "限月取引" (Contract months), "権利行使価格" (Exercise price), "取引単位" (Contract unit) and "呼値の単位" (Tick size) rows. Checked on September 25, 2026. ↩

11. Osaka Exchange, "プレミアム" (Premium), Kitahama Investment School (in Japanese): "銘柄によって違うプレミアム" (Premiums differ by series) and "時間的価値はどのように決まるのか" (How is time value determined?). ↩

12. Japan Exchange Group, "制度概要" (Contract specifications), Nikkei 225 Options (in Japanese), the "証拠金" (Margin) row. The contract specifications refer readers to the JSCC website for details. ↩

13. Osaka Exchange, "先物取引のすべて" (All about futures trading, in Japanese), page 37, "（2） 顧客が差し入れる証拠金について" (Margin deposited by customers). ↩

14. Japan Exchange Group, "ヘッジ取引" (Hedge trading), glossary (in Japanese). ↩

15. Japan Exchange Group, "商品一覧（先物・オプション）" (Product list: futures and options, in Japanese; updated April 13, 2026), the "国内株価指数" (Japanese equity indices) row for Osaka Exchange. ↩