InvestorQ : How exactly are index options useful to investors and traders?
Anamika Sodhani made post

How exactly are index options useful to investors and traders?

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Anamika Sodhani answered.
3 years ago
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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. For the same reason, the index options also entail a lower upfront margin and MTM margin due to lower volatility. Index options can also be used to hedge a portfolio through a process which is called the beta hedging.
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