Chicago Board Options Exchange will launch trading in a new type of S&P 500 Index options contract, known as CBOE S&P 500 Range options (SRO), beginning on 28 August.

CBOE Range options were designed to provide individual investors with a lower-risk, lower-cost way to trade S&P 500 Index options.

SROs pay an exercise settlement amount if the settlement value of the underlying index at expiration selected by the investor falls within a specified "range length." The range length for SROs will be set at 70 S&P 500 Index points.  

SRO payouts work as follows: if the S&P 500 Index settlement value falls within the middle 50 points of the 70-point range, the payout for the option will be USD1,000. If the S&P 500 Index settlement value falls within the 10 points on either side of the 50-point range, the payout amount will decrease linearly (e.g. positive payout will be between USD999 and USD1) to zero.

"Range options give investors with an outlook on S&P 500 Index prices a new way to gain exposure to the market - with less need for price precision," says CBOE chairman and chief executive William J Brodsky (pictured). "The new contract brings another dimension to our extensive S&P 500 Index option complex. Like SPX, SPX Weeklys and SPXpm, Range options provide a unique way for our customers to trade the S&P 500. Each of these products underscores CBOE's commitment to develop new and innovative products that address the diverse needs of investors."