Demystifying Index Options Trading

By February 15, 2015 Newsletter No Comments

In the past few decades, we have experienced vast and revolutionary expansion in terms of technological capabilities. As the information era dawned the advent of new media, we’ve witnessed the proliferation of information.

The incredible short-term evolution of the global economy has led to the development of many industries, especially the financial sector, which has experienced an unprecedented growth at an exponential rate. This has created huge amounts of wealth and propagated prosperity for state entities, corporate entities, and individuals alike.

Proliferation of the Financial Markets

The dynamics of the financial markets and the investment sector have been significantly altered to the point that the current landscape lacks any real resemblance to its former state. In the mid-twentieth century, investors and traders were restricted to the most basic form of financial investment, i.e. stocks. However, over the course of the last few decades, investors need not invest in individual shares anymore. This is due to the development of several different investable instruments that were brought to the mainstream market. For example, investors were able to trade specific market indexes rather than the shares which comprise the index.

One of the most recent innovations in the financial markets has been the introduction of exchange-traded-fund ETFs. These funds are similar to any other index or mutual fund with the additional benefit that they are being traded on the financial markets.

Index Options

The introductory options were welcomed by the industry, as it offered a way to further diversify one’s portfolio. However, the incorporation of trad-able indexes, with the options sector, offered an investor access to the financial derivative. This gave investors the ability to sell or purchase a basket of stocks in an index, such as the S&P 500 or 1500.

An index option is essentially quite similar to the original options contracts. The main difference is that underlying trad-able instruments are the index itself, rather than an individual stock. Index options offer an investor the opportunity to hedge the risks associated with a single stock, while allowing them to profit from the overall growth in the market.

Benefits of Index Options

Index options enable an investor to access a wide range of equities based on their risk appetite. The degree of exposure to the financial market is completely dependent upon the investor’s strategy. It allows for easy and simplified participation into a wide number of indexes throughout the financial world, such as the Dow Jones Industrial Average Index Options, Russell 2000 Index, and Nasdq-100 Index Options.

Providing an Investing Edge

As stated earlier, the financial industry has grown at an exponential rate, offering investors access to such a huge range of investment options, which was never thought possible. Although it allows more decent portfolio accumulation with optimum risk management, many investors feel overwhelmed by all the possibilities leaving them alienated and disorientated in the highly lucrative world of investments.

The options-based investment instruments can be extremely profitable, regardless of the specific instrument, i.e. options ETFs or index options. What truly matters is whether the investor makes a well thought of investment based on empirical investment strategies relevant to the economic conditions and region. Financial Market Wizards provides the investment acumen for the investors and traders to leverage, so that they can successfully perform in the financial markets. Contact us for more information on how we aid thousands of traders achieve a higher degree of success in terms of index performance.

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