A monetary constant, typically set at $100, which is used to figure out the dollar value of the stock index on which an option is based. This value is calculated by multiplying the constant by the cash value of the index, that is:

Dollar value of the underlying index = cash index value × contract multiple

This calculation is necessary for an investor to determine whether to exercise an index option or not. For a stock option, the strike price represents the price at which the holder can buy or sell the underlying stock. For an index option, the “strike index” is the cash index value at which the holder can buy or sell the underlying index. To reach the cash index value, the strike price is multiplied by that constant. For example, if the strike index is currently at 1,500, then the dollar value is 1,500 X $100= $150,000. If an investor had already bought a call option on a given stock index with a strike index of 1400, then he can purchase the index for 1,400 X $100= $ 140,000, whilst it is currently at $150,000. Since index options are cash-settled, the holder would receive from the option writer:

150,000- 140,000= $10,000