Benefits of Listed Index Options

Like equity options, index options offer the investor an opportunity to either capitalize on an expected market move or to protect holdings in the underlying instruments. The difference is that the underlying instruments are indexes.

The Greeks are a collection of statistical values (expressed as percentages) that give the investor a better overall view of how a stock has been performing. These statistical values can be helpful in deciding what options strategies are best to use. The investor should remember that statistics show trends based on past performance. It is not guaranteed that the future performance of the stock will behave according to the historical numbers. These trends can change drastically based on new stock or index performance.

Volatility can be a very important factor in deciding what kind of options to buy or sell. Volatility shows the investor the range that a stocks price has fluctuated in a certain period. The official mathematical value of volatility is denoted as "the annualized standard deviation of a stocks daily price changes."

There are many different option strategies that investors can use when it comes to protecting their portfolios.  In times of high volatility, which seems to be the current market theme, collars can be used to limit the downside risk to a portfolio.  There are numerous ways to use collars by buying and selling a combination of puts and calls but the end result will always keep losses and gains on a stock within a specific range.