Index options and options on the ETFs (Exchange Traded Funds) that track indexes is one of the most popular way to trade. These options allow placing trades based on the trend of a basket of stocks, which has number of advantages when compared to selecting, analyzing and trading several individual stocks. Plus, index and ETFs (that track indexes) options are highly liquid and easy to buy/sell any time trading vehicles.
Below we discuss some of the most liquid index options available on the market today. High liquidity means high trading volume and it means you can easily open and close a position. Other options on indexes are available as well; however, not all of them not provide the same high degree of liquidity as the ones listed below. If you think that you would rather speculate on the market's or industry's (covered by index) general direction rather than spend time and resources on analysis of several of individual stocks, then trading options on indexes might be your choice.
The NASDAQ-100 Index was introduced in January 1985 and it covers the top 100 of the largest non-financial companies listed on the NASDAQ stock Exchange. Most of these companies are well known companies, such as Microsoft, Apple, Google, Intel, Qualcomm, and Cisco Systems.
The options on the NASDAQ-100 Index were first traded on the CBOE (Chicago Board Options Exchange) in February 1994.
Since the stocks listed in the NASDAQ-100 Index could be very volatile, the NASDAQ-100 Index options prices can also be volatile significantly.
There is number of ways to invest in the NASDAQ-100 index:
The QQQ Options are in the list of the most liquid options that are currently traded on the market. They could be recommend as a relatively low risk possibility of leveraging a part of your portfolio.
OEX (also called S&P 100 index) options give you a ability to speculate on the trends of the S&P 100 index ("Standard and Poors S&P 100 Stock Index"). The OEX index comprises 100 blue-chip stocks from various industry groups by providing a good measurement of the overall market's performance. The S&P 100 index is a subset of the S&P 500 index - the stocks listed in the OEX index are also listed in the 500 index. The stocks listed in the S&P 100 index are not equally waited - the larger a stock is, the greater its influence on the value of total index.
Traders have been investing into the OEX options since 1983. More than one 1B S&P 100 options have been traded since then which makes the S&P 100 as one of the most popular equity portfolio management tools.
In February 2001, options the S&P 100 Exchange Traded Funds (iShares S&P 100 - symbol OEF) were introduced.
In July 2001, the S&P 100 options with European-style exercise (symbol XEO) were introduced by CBOE.
The OEX options are attracting the investors for several reasons:
The SPX (S&P 500 index) options are in the list of the most highly liquid (highly traded) options on the market. The S&P 500 index considered as one of the best barometer of the overall US market and US economy. It consist of 500 biggest and leading companies traded on the NYSE and NASDAQ exchanges.
Monthly SPX option contracts are available for the three coming months. LEAPS (long-term contracts) options are also available for the S&P 500 Index. The SPX options strike prices are usually moves in intervals of 25 points.
The same as with other index options the most attractive in investing into the S&P 500 is:
The DJI (Dow Jones Industrial Average Index) options (DJX) enable the trader to trade on the future trend of the Dow index. Since their lunch in 1997, DJX options have became one of the most traded index options. These option contracts are based on the Dow Jones Industrial Average (DJIA) - one of the oldest U.S. market index (introduced 1896).
For individual investors, the Dow Index is the world's best known benchmark index. It consist of 30 large and strong companies. The Dow Jones Industrial index is the most analyzed and followed index all around the globe and it is considered a leading trading indicator which reflects the health of the U.S. market.
The DJX options value is calculated as 1/100 of the value of the DJIA index. As an instance, when the Dow index is traded at $12,000, the DJX options contract will cost at above $120. As a rule the DJX option contracts strike prices are set in intervals of 100 points.
The DJX Index options contracts are heavily traded for several reasons:
The QQQ options the same as QQQ stock (Exchange Traded Fund) are based on the NASDAQ-100 Index and are very popular in recent years due its relatively low required amount to speculate on the Nasdaq 100 index's movements. These options are some of the most liquid options on the market - You may very easily buy and sell three closest expirations.
QQQ options are options on the NASDAQ-100 Index Tracking Stock and have become very popular in recent years. The most liquid options currently traded on the market are the QQQ options. The QQQ, also known as the "cubes" or ("Qubes"), are an example of an exchange-traded fund (ETF). Because ETFs track major stock indexes , they can be traded just like a regular stock. The QQQ track the NASDAQ-100 Index, which consists of 100 of the biggest and most important stocks of the NASDAQ Composite Index.
The most liquid index options available today are discussed above. High liquidity means you can easily get in and out of a position. Although other index options are available, most do not provide the same degree of liquidity as the ones discussed. Trading index options might be just for you if you would rather speculate on the general direction of a basket of stocks (i.e., an underlying index) than analyze a number of individual stocks.
Naked options trading is very risky - many people lose money trading them. It is recommended contacting your broker or investment professional to find out about trading risk and margin requirements before getting involved into trading uncovered options.