The New York Stock Exchange has joined other financial markets in playing one of the hottest new investment games in the the nation: speculating on a closely watched index of stock market performance.

The Big Board on Friday began trading options based on the NYSE composite index of all the more than 1,500 stocks traded on the exchange.

NYSE index options are the latest of nearly a dozen investment vehicles offering speculators a chance to make and lose money by calling the overall direction of the market, rather than predicting the performance of an individual stock or groups of stocks.

And, because the new index options and futures contracts require only a small down payment, they provide strong leverage for investors. The potential for profit (or loss) when the market swings is much greater than the possible gains from trading on the underlying stocks.

Creators of the new index options and futures say they are designed to inject new flexibility into stock market investments and to allow investors to protect themselves against volatility in stock prices while simultaneously making it possible to profit from that volatility.

The growth of the new investments is also nourished by old-fashioned competition among the exchanges to create products that will earn commissions for stock brokers and traders.

Since the Securities and Exchange Commission and the Commodity Futures Trading Commission settled a dispute over regulation of the new kinds of investments, the two agencies have approved a raft of index options and futures contracts.

The SEC has okayed 13 options applications from the NYSE, the American Stock Exchange and the Chicago Board Options Exchange; another is pending from the Pacific Exchange.

The CFTC has approved 16 stock index futures contracts and has 20 more applications pending. The stock index futures contracts cover indices ranging from the venerable Value Line Index of common stocks to newly created indices representing groups of companies in industries such as computers, oil and gas and office equipment.

Only 10 of the 29 new investments that have been approved by the regulators are trading and only half of those have achieved substantial volume. Industry estimates are that more than $350 million in cash was committed to such trading as of the beginning of this month.

The most popular of the stock index investments is the Chicago Mercantile Exchange's futures contract based on Standard & Poor's index of 500 stocks. In the first eight months of this year, 5.3 million S&P 500 futures contracts were traded.

The Chicago Board of Options Exchange traded 4.3 million contracts on the S&P 100 index in its first six months. Volume in the New York Stock Exchange composite index futures contracts amounted to 2.3 million in eight months. Volume was close to a million contracts on the American Stock Exchange major market index options and the Kansas City Board of Trade Value Line futures index.

With both stock index options and index futures contracts, the basic strategy for investors is the same--to try to predict whether the index will go up or down. If you think the index is going up, you buy options or futures contracts; if you think it is going down, you sell.

In legal terms, the key difference between a futures contract and an option is that the option gives the holder the right to buy or sell something, while the futures contract carries both the right and the obligation to buy or sell the commodity. That distinction translates into a significant difference in the risk of the two forms of investment.

In theory, index options and futures investors are purchasing the right to buy or sell one share of each of the stocks represented by the index at a predetermined price at some future date. In fact, the actual stocks never change hands. Instead, the investors collect cash for the difference between the value of the contract and the value of the index.

If you think the stock market is going to continue to rise, you can buy stock index options or stock index futures at today's price. If the market does go up, you can sell the contract at a profit.

If the price goes down, you lose. How much you can lose depends on whether you participate in the options or futures markets.

In the index options game, speculators pay a fixed price called a "premium" for the option. If the value of the index drops, the option becomes worthless and you're out the amount of the premium.

In stock index futures, however, there is no limit on the loss. When the value of the futures contract drops, the holder is obligated to pay the full amount of the loss.

When futures prices drop rapidly--as they did during the collapse of the silver market a couple of years ago--it can be impossible to sell a contract. The speculator can be forced to hold on and watch the loss multiply until the price hits bottom.

Frank J. Jones, who heads the NYSE index options trading, predicts the new product will be more popular with individual investors than its two most similar competitors--futures contracts based on the same index and options on the index futures. Both are traded on the New York Futures Exchange, a subsidiary of the NYSE. The potentially unlimited risk of the futures contract discourages investors, he suggested, and the market in options based on futures contracts is too complex for most individuals to follow.

To boost its new product, the NYSE received permission this week from the SEC to let brokers who are not members of the exchange trade in the options market for a year for free, without buying the seat on the exchange usually required to do business there. The move is aimed at drawing traders from other exchanges. The American Stock Exchange and Chicago Board Options Exchange, which don't give free admission to anyone, labeled the NYSE offers a "predatory practice."

The SEC also approved a request by the Amex to allow monthly expiration dates in options on its 20-stock major market index. Currently options contracts expire quarterly. The NYSE and CBOE are expected to make similar changes because they say there will be more actions on monthly contracts.