Index Roll

AAA

DEFINITION of 'Index Roll'

A passive index investing strategy that is established by using a combination of index funds and long-term equity anticipation securities (LEAPS). The investor must roll over a series of LEAP options in an attempt to gain exposure to a long-term move in an index. The leverage from the options allows the investor to magnify gains and can result in outperforming an index over the long run.

INVESTOPEDIA EXPLAINS 'Index Roll'

This type of investing strategy allows an investor to have the same exposure to a standard benchmark, but often with less capital because of the exposure from the LEAP option. Over time, the position will have similar payoff characteristics to a regular indexing strategy, but returns tend to be slightly magnified because of the exposure from the option in the early stages of the setup.

RELATED TERMS
  1. Passive Investing

    An investment strategy involving limited ongoing buying and selling ...
  2. Outperform

    An analyst recommendation meaning a stock is expected to do slightly ...
  3. Leverage

    1. The use of various financial instruments or borrowed capital, ...
  4. Benchmark

    A standard against which the performance of a security, mutual ...
  5. Index Fund

    A type of mutual fund with a portfolio constructed to match or ...
  6. Long-Term Equity Anticipation Securities ...

    Publicly traded options contracts with expiration dates that ...
Related Articles
  1. Mutual Funds & ETFs

    Active Vs. Passive ETF Investing

    You can use these securities for more than just indexing. Explore the spectrum of possible ETF strategies.
  2. Options & Futures

    The Lowdown On Index Funds

    If you can't beat the market, why not join it? Read on to go over your options.
  3. Mutual Funds & ETFs

    Index Investing

    Get to know the most important market indices and the pros and cons of investing in them.
  4. Options & Futures

    What is the difference between arbitrage and hedging?

    Dive into two very important financial concepts: arbitrage and hedging. See how each of these strategies can play a role for savvy investors.
  5. Options & Futures

    A Detailed Look Into China's Options Market

    As the Chinese options market gradually takes shape, we provide an overview, including details of the initial phase and building blocks, primary beneficiaries, the impact on the overall financial ...
  6. Options & Futures

    How do you trade put options on E*TRADE?

    Learn all about put option trading at E*TRADE. Explore margin accounts and become familiar with the different types of option writing.
  7. Trading Systems & Software

    How do you trade put options on Ameritrade?

    Learn about option trading with TD Ameritrade. Explore the different types of options and their possible impacts on the investors that write them.
  8. Options & Futures

    Avoid These 10 Mistakes When Trading in Cheap Options

    Cheap options can be very risky. Reduce your risk by avoiding these 10 common mistakes in trading in cheap options.
  9. Options & Futures

    What is the difference between a short position and a short sale?

    Learn how short selling and short positioning are different, specifically in regards to the nature of the commodity being bought and sold.
  10. Options & Futures

    Are there any risks involved in trading put options through a traditional broker?

    Explore put option trading and different put option strategies. Learn the difference between traditional, online and direct option brokers.

You May Also Like

Hot Definitions
  1. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  2. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  3. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  4. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  5. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  6. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
Trading Center