WHY WOULD ANYONE WANT TO BUY STOCK INDEX FUTURES OR OPTIONS? - ProProfs Discuss
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Why would anyone want to buy stock index futures or options?



Asked by Noah, Last updated: Sep 18, 2021

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John Smith

John Smith

John Smith
John Smith

Answered Sep 08, 2016

Many people purchase index derivatives to speculate on price changes to the index. ifyou believed the market was going to rise substantially, you could certainly by commonshares in a variety of companies. or you could purchase index options or a futurescontract with a market index as the underlying asset, for example, and profit from anincrease in the overall index.there are individuals and institutions that use index derivatives to hedge their existingpositions. for example, if you own a portfolio of stocks and you fear that the market isgoing to fall, you could sell your portfolio of stocks, but this would be costly in terms ofcommissions, etc. rather than sell the portfolio, you could sell an index futurescontract. when the market falls, your portfolio of stocks would fall in value. but at thesame time, you would profit from the futures contract. the portfolio loss would beoffset by the gain in the futures contract.
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