Maybe you’ve been trading stocks or commodity for some time and they are looking for new opportunities.
Have you thought about index options? They are certainly not exclusively for institutional investors anymore.
The truth is, many retail equity options traders could make a fairly easy transition to Mini S&P 500 and Mini Russell 2000 Index options. For these are smaller versions from the equivalent standard index options contracts. At 1/10th how big is the conventional contracts, Mini Index options allow retail traders to realize broad market exposure and execute trading strategies with less capital.
5 Top reasons to Trade Index Options
Index options will 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 which help narrow the main focus to promote risk rather than individual company risks.
Index options generally have lower volatility than alternatives on individual stocks. Volatility around earnings reports, mergers, as well as other news events may have a significant effect on stock options prices. Though index options, those volatile moves tend to lessen.
Index choices are European style, meaning they won’t be exercised before expiration. Equity options, however, could be exercised anytime. Investment settle to shares from 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 often have narrower bid/ask spreads than single-stock options as a result of greater liquidity.
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