What is the difference between option on stock index and option on a stock index future?

I understand what an option is. But what is the difference between option on the stock index and option on the stock index futures?|||The difference is that an option on a stock index has the cash index as the underlying instrument. So, for the S%26amp;P 500 (SPX) options listed on the CBOE, the underlying instrument is the actual S%26amp;P 500 index, the one that gets quoted a lot on TV and in newspapers. These options are cash-settled.





On the other hand, an option on a stock index future has the actual index futures contract as the underlying. So, for the options on the S%26amp;P 500 index futures (e.g. e-mini, ticker ES) that are listed on the CME, the underlying instrument is the e-mini futures contract. These options are either settled into cash (quaterly options) or into the nearst futures contract (serial options). For example, September options have the September futures contract as the underlying and will settle into cash as the options expire at the same time as the underyling futures contract. August options, have the same September futures contract as the underlying, but since August options expire 1 month earlier, they will settle into the September futures contract.





This doesn't seem like a big deal, until you have a calendar spread on, where the two options may have different underlying contracts and thus you have additional basis risk. This risk doesn't exist in cash index options, as all maturities have the same underlying.





There are also differences in the way cash index options and futures options are margined. Cash index options fall under Reg. T., while futures options are under SPAN margining.





Another difference, this applies if you pay tax in the US, is that futures options like futures have favourable tax treatment (40/60).|||the difference is its underlying assets. The first one's value is based on stock index price and the second one's value is based on stock index future.|||It's a useful website for beginners, I suggest you to bookmark it.





http://www.investopedia.com/articles/opt鈥?/a>