Fundamental Knowledge About Index Options

Maybe you have been stock market trading or stock options for a time and are trying to find new opportunities.

Have you considered index options? They are certainly not simply for institutional investors anymore.

Actually, many retail equity options traders can make a simple transition to Mini S&P 500 and Mini Russell 2000 Index options. That is because they may be smaller versions from the equivalent standard index options contracts. At 1/10th the size of the conventional 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 might help traders diversify a portfolio and gain broad exposure with (generally) one trade. When compared with single stocks, index options lessen the odds of experiencing a space move that assist narrow the main focus to showcase risk rather than individual company risks.

Index options generally have lower volatility than options on individual stocks. Volatility around earnings reports, mergers, along with other news events will have a significant influence on investment prices. However with index options, those volatile moves have a tendency to lessen.

Index choices are European style, meaning they won’t be exercised before expiration. Equity options, conversely, can be exercised anytime. Stock options settle to shares with 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 frequently have narrower bid/ask spreads than single-stock options on account of greater liquidity.

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