What are Stock Index Options?
The Stock Index Options are options where the underlying asset is a Stock Index for e.g. Options on S&P 500 Index/ Options on Nifty , Minifty etc.
Index Options were first introduced by Chicago Board of Options Exchange in 1983 on its Index 'S&P 100'. As opposed to options on Individual stocks, index options give an investor the right to buy or sell the value of an index which represents group of stocks.
What are the uses of Index Options?
Index options enable investors to gain exposure to a broad market, with one trading decision and frequently with one transaction. To obtain the same level of diversification using individual stocks or individual equity options, numerous decisions and trades would be necessary.
Since, broad exposure can be gained with one trade, transaction cost is also reduced by using Index Options. As a percentage of the underlying value, premiums of index options are usually lower than those of equity options as equity options are more volatile than the Index.
Who would use index options?
Index Options are effective enough to appeal to a broad spectrum of users, from conservative investors to more aggressive stock market traders.
Individual investors might wish to capitalize on market opinions (bullish, bearish or neutral) by acting on their views of the broad market or one of its many sectors.
The more sophisticated market professionals might find the variety of index option contracts excellent tools for enhancing market timing decisions and adjusting asset mixes for asset allocation.
To a market professional, managing risks associated with large equity positions may mean using index options to either reduce risk or increase market exposure.
The Stock Index Options are options where the underlying asset is a Stock Index for e.g. Options on S&P 500 Index/ Options on Nifty , Minifty etc.
Index Options were first introduced by Chicago Board of Options Exchange in 1983 on its Index 'S&P 100'. As opposed to options on Individual stocks, index options give an investor the right to buy or sell the value of an index which represents group of stocks.
What are the uses of Index Options?
Index options enable investors to gain exposure to a broad market, with one trading decision and frequently with one transaction. To obtain the same level of diversification using individual stocks or individual equity options, numerous decisions and trades would be necessary.
Since, broad exposure can be gained with one trade, transaction cost is also reduced by using Index Options. As a percentage of the underlying value, premiums of index options are usually lower than those of equity options as equity options are more volatile than the Index.
Who would use index options?
Index Options are effective enough to appeal to a broad spectrum of users, from conservative investors to more aggressive stock market traders.
Individual investors might wish to capitalize on market opinions (bullish, bearish or neutral) by acting on their views of the broad market or one of its many sectors.
The more sophisticated market professionals might find the variety of index option contracts excellent tools for enhancing market timing decisions and adjusting asset mixes for asset allocation.
To a market professional, managing risks associated with large equity positions may mean using index options to either reduce risk or increase market exposure.
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