With index options, risk exposure can be reduced or yields increased for an existing stock portfolio. Index options can also be used as an alternative to buying a diversified stock portfolio, since investment in options requires less capital than purchasing the stock. A small price change in the underlying share can lead to large increases in option yields. Index options are also an effective way to lock in profits for an existing stock portfolio. Again, only a relatively small amount of risk capital is required to reduce risk and protect against price declines.
