Abstract:
In this paper we will discuss about index option trading system whose popularity is increasing rapidly. Indexes are very easy to use and this system is pretty much risk effective.
The practice of option trading with the indexes is increasing day by day. An index is a listing of stocks that have some common features. It signifies the composite value of all the stocks.
For example, Dow Jones Industrial Average, which shows the values of the first 30 largest stocks, listed on the New York Stock Exchange (NYSE).
Another popular index is Standard & Poor's 500 which represents the value of 500 different kinds of stocks available in the US stock market.
Some other indexes are also there but they are not as much popular as the above-mentioned two are. However, indexes can be categorized on the basis of the method of weighing. Some indexes treat every stock equally.
Other indexes weigh the stocks on the basis of their value, that is the company size. Therefore, the big companies have greater impact on the indexes than the smaller ones.
Index option trading system is a risk effective system. The traders may go for it without any sort of hesitation. Even if the market price goes down, then also the indexes will get affected marginally.
Index option trading system works more effectively with the help of trend analysis.
