Important Information About Index Options

Maybe you have been trading stocks or share for quite a while and so are looking for new opportunities.

Have you investigated index options? They aren’t just for institutional investors anymore.

Actually, many retail equity options traders will make a fairly easy transition to Mini S&P 500 and Mini Russell 2000 Index options. That’s because they may be smaller versions from the equivalent standard index options contracts. At 1/10th how big is the typical contracts, Mini Index options allow retail traders to realize broad market exposure and execute trading strategies with less capital.

5 Good reasons to Trade Index Options

Index options can help traders diversify a portfolio and gain broad exposure with (in many instances) one trade. In comparison with single stocks, index options reduce the possibility of experiencing a gap move that assist narrow the focus to showcase risk rather than individual company risks.

Index options are apt to have lower volatility than choices on individual stocks. Volatility around earnings reports, mergers, and also other news events may have a significant influence on investment prices. Though index options, those volatile moves often lessen.

Index choices European style, meaning they can’t be exercised before expiration. Equity options, conversely, could be exercised anytime. Commodity settle to shares of the underlying stock, while index options settle to cash.

Index options typically qualify for the 60% long-term, 40% short-term capital gains tax treatment.*

Index options usually have narrower bid/ask spreads than single-stock options on account of greater liquidity.

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