Introduction to Indices Option Trading

By | August 15, 2014

Friday, August 15th, 2014 by Tim Lanoue

Indices are perhaps one of the most underutilized trading assets due to their lack of popularity and the unfamiliarity that traders share with the index. For those of who you are unfamiliar with what indices are they simply an index used to reflect and measure change in the economy. Every index is different in their composition, meaning the make up and they all act differently. Below I will cover what to look for when trading indices and the indices best utilized with the fundamental suggestion.

Strong Bearish/Bullish Trends with Dollar Value

The overall dollar value will always effect the price of an index. You have to remember that indices are used as a way to measure certain market conditions and assets. So as you can imagine if the price of the dollar is rising so will the price of a certain index. The opposite could be said when the price of the dollar goes down, some indices will rise and others will drop in value. Tangibility wise though indices do not carry any true value, there value is indirectly effected by market assets and conditions. When the price of the dollar value is rising, popular assets to place call trades with would be the S&P 500, DAX 30, Bitcoin, and NASDAQ 100 and Dow Jones. However, if the value of the dollar is decreasing then indices you would want to trade would be the S&P 500, NASDAQ 100 NS FTSE 100.

dowjones-option

Rising Price Value of High Volumed Stocks

Many of the more popular indices are a reflection on a number of stocks, so when the prices of high volume stocks are changing so is the value of certain indices. Popular high volumed stocks that you should watch are as listed: KATE, AAPL, TWTR, FB, and MSFT. When the value of these major stocks are effected I would consider placing a trade in the same direction that the stocks are going with the indices S&P 500, FTSE 100 and MSCI.

Price of Oil

Oil has such a strong correlation with currency pairs and stocks but what many traders fail to realize is that it also affects the value of an index. This main index would be the S&P 500, when the price of oil rises the value of the S&P 500 will decrease and vice versa. So if the price of oil drops then the price of the S&P will increase. I use the correlation between oil prices and the S&P 500 when trading binary options almost on a daily basis, it is extremely easy to take advantage of and is highly effective.

Indices are the most under-traded asset in binary options and will probably continue to be due to lack of popularity. If you are new, experienced or a trader who prefers fundamental analysis opposed to technical analysis trading strategies then this strategy would be great for you. Sometimes to really pays off taking advantage of the little correlations that go on between indices and market conditions that could ultimately dictate your amount of success as a binary options trader. If you guys have any questions or comments please feel free to leave them below.

Checkout the NEW and Improved Strategies and Indicators for Binary Options section on the BinaryoptionsChannel.com

2 thoughts on “Introduction to Indices Option Trading

  1. Tim Lanoue

    Hey Jonathon,

    Those are two great questions there, I do believe that indices will become more popular as time goes on with binary options but I do not seem them becoming as popular as Currency Pairs or Stocks. Perhaps really close commodities though, it all just depends on how commodities and stocks are doing, if they are doing well then they will be a better asset to trade so they become more popular, and vice versa the other way. Also, you are 100% correct with the definition of indices!

    Great questions, keep them coming! 😀

    -Tim

    Reply
  2. Jonathon Grey

    Tim:

    Do you believe that Indices will become a more popular asset to trade in binary options in the future? If I understand correctly indices are basically assets that are used to gauge and measure other assets, is that correct?

    Thanks for your time.

    Jonathon

    Reply

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