Maybe you’re stock market trading or share for a time and are searching for new opportunities.
Have you investigated index options? They’re not just for institutional investors anymore.
In reality, many retail equity options traders can make a simple transition to Mini S&P 500 and Mini Russell 2000 Index options. For they are smaller versions with the equivalent standard index options contracts. At 1/10th how big is the typical contracts, Mini Index options allow retail traders to get broad market exposure and execute trading strategies with less capital.
5 Top reasons to Trade Index Options
Index options might help traders diversify a portfolio and gain broad exposure with (in most cases) one trade. As compared to single stocks, index options reduce the odds of experiencing a gap move and help narrow the focus to promote risk as opposed to individual company risks.
Index options generally have lower volatility than choices on individual stocks. Volatility around earnings reports, mergers, and other news events may have a significant effect on investment prices. However with index options, those volatile moves usually lessen.
Index options are European style, meaning they won’t be exercised before expiration. Equity options, conversely, could be exercised anytime. Share settle to shares of the underlying stock, while index options settle to cash.
Index options typically entitled to the 60% long-term, 40% short-term capital gains tax treatment.*
Index options usually have narrower bid/ask spreads than single-stock options because of greater liquidity.
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