Nov
03
2025
What Are Underlying Assets? Types & Examples

What are Underlying Assets?

By | Growing Wealth, invest, Investing | Comments Off on What are Underlying Assets?

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

Underlying assets are the financial instruments (stocks, bonds, and commodities) that help determine the value of derivatives (options, futures, and swaps). These assets serve as the foundation for many trading strategies, influencing how derivatives contracts are priced and how risk is managed in the market.

Here, we look at the role of underlying assets in derivatives trading, and outline the five of the most common types used by investors.

Key Points

•   Underlying assets are the securities derivatives are based on, such as stocks, bonds, and commodities.

•   Investors may trade derivatives to speculate and attempt to profit from the future price movements of underlying assets, or to hedge against risk.

•   Derivatives prices are based on the price of the underlying asset, as well as potentially other factors, depending on the type of derivative.

•   Derivatives carry high risk and are complex, often requiring advanced trading knowledge.

•   These financial instruments may be used by investment firms, hedge funds, institutional investors, and retail investors.

What Is an Underlying Asset?

An underlying asset is a financial instrument, like a stock, bond, or commodity, that helps determine the value of a related derivative contract. Underlying assets can be individual securities (like stocks or bonds) or groups of securities (like in an index fund).

A derivative is a financial contract between two or more parties based on the current or future value of an underlying asset. Derivatives can take many forms, involving trading in widely used markets like futures, equity options, swaps, and warrants, among others.

These contracts can involve significant risk as investors speculate on the future price movements of an underlying asset. An investor may profit if the price of the underlying asset moves as they anticipated, but they could potentially face steep losses if the price moves in an adverse direction. Derivatives are also often used to hedge against potential losses in other investments.

How Underlying Assets Work

To illustrate how underlying assets work in the derivatives market, consider options trading as an example.

An option is a financial derivative that gives the contract holder the right, but not the obligation, to buy or sell an underlying security by or at a specific time and at a specific price. When an option is exercised by the contract holder, that means the holder has exercised the right to buy or sell an underlying asset.

Options come in two specific categories: puts and calls.

•   Put options allow the options owner to sell an underlying asset (such as a stock or commodity) at a certain price and on or by a certain date (known as the expiration date).

•   Call options enable the owner to buy an underlying asset (like a stock or a commodity) at a certain price and on or by a certain date.

The underlying asset first comes into play when that options contract is initiated.

Example of an Underlying Asset in Play

Suppose an investor believes the price of a company’s stock is going to rise. The stock is currently trading at $275 per share, and so they opt to purchase a call option with a strike price of $285. The contract is struck on September 1 and the options contract expiration date is November 30.

Now that the contract is up and running, the performance of the underlying asset (the stock) can determine whether the option becomes profitable or expires worthless.

In this scenario, the options owner now has the “option” (hence the name) to buy 100 shares of the stock at $285 per share on or before November 30. If the underlying stock, which is now trading at $275, moves above the $285 strike price, the options owner can exercise the contract and potentially profit from the difference between the strike price and the market price.

If, for example, the stock slides to $290 per share in the options contract timeframe, the call options owner can exercise the purchase of the stock at $285 per share, $5 below its current value of the stock (i.e., the underlying asset). With each contract typically representing 100 shares of stock, the profits can add up on the call option investment.

If, on the other hand, the stock remains below the $285 per share level, and the November 30 deadline has come and gone, the options owner would not exercise the contract, since the stock is now worth less than the $285 strike price. That’s also the price the options owner has to pay for the stock by the expiration date.

Keep in mind, too, that options buyers must also take into account the amount they spent to purchase the options contract, since this would detract from their potential profits. If for example, the premium for a contract was $1 per share, or $100 total, they would need the price of the underlying asset to rise above $286 (the breakeven point) to profit.

This scenario represents the importance of the underlying asset. The derivatives investment depends entirely on the performance of the underlying asset, with abundant risk for derivative speculators who’ve taken positions on the underlying asset moving in a certain direction over a certain period of time.

5 Different Types of Underlying Assets

Underlying assets come in myriad forms in the derivatives trading market, with certain assets being used more frequently due to their liquidity and price volatility.

Here’s a snapshot.

1. Stocks

One of the most widely used underlying assets is stocks, which is only natural given the pervasiveness of stocks in the investment world.

Derivatives traders rely on equities as benchmark assets when making market moves. Since stocks are so widely traded, it gives derivatives investors more options to speculate, hedge, and generally leverage stocks as an underlying asset.

2. Bonds and Fixed Income Instruments

Bonds, typified by Treasury, municipal, and corporate bonds, among others, are also used as derivative instruments. Since bond prices do fluctuate based on general economic and market conditions, derivative investors may try to leverage bonds as an underlying asset as both bond interest rates and prices fluctuate.

3. Index Funds

Derivative traders also use funds as underlying assets, especially exchange-traded funds (ETFs), which are widely traded in short-term (or intra-day) trading sessions. Besides being highly liquid and fairly easy to trade, exchange-traded funds are also tradeable on major global exchanges at any point during the trading day.

That’s not the case with mutual funds, which can only be traded after the day’s trading session comes to a close. The distinction is important to derivative traders, who have more opportunities for market movement with ETFs than they might with mutual funds.

ETFs also cover a wide variety of investment market sectors, such as stocks, bonds, commodities, international and emerging markets, and business sector funds (such as manufacturing, health care, and finance). That availability gives derivatives investors even more flexibility, which is a characteristic investors typically seek with underlying assets.

4. Currencies

Global currencies like the dollar or yen, among many others, are also frequently used by derivative investors as underlying assets. A primary reason is the typically fast-moving foreign currency (FX) market, where prices can change rapidly based on geopolitical, economic, and market conditions.

Currencies usually trade fast and often, which may make for a volatile market — and derivative investors tend to steer cash toward underlying assets that demonstrate volatility, as quick market movements may create short-term profit potential. Given that they move so quickly, currencies can also move in the wrong direction quickly, which is why some financial professionals caution that currency markets may be too volatile for most individual investors.

5. Commodities

Common global commodities like gold, silver, platinum, and oil and gas can also serve as the basis for derivatives contracts traded by investors.

Historically, commodities have been one of the most volatile and fast-moving investment markets. Like currencies, commodities are often highly desirable for derivative traders, but high volatility may lead to significant investment losses in the derivatives market if the investor lacks the experience and knowledge required to trade against underlying assets.

The Takeaway

Underlying assets are the fundamental financial instruments used to create derivatives contracts and strategies. Derivatives, such as options, futures, and swaps, can come with high risk — and trading against those assets requires a comprehensive knowledge of trading, position sizing, leverage, hedging, and speculation.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

Explore SoFi’s user-friendly options trading platform.

FAQ

What are underlying assets?

Underlying assets are the foundation of derivatives contracts. They influence how a derivatives contract is priced and serve as the basis of a derivative buyer or seller’s trading strategy. Broadly, investors trade derivatives to try to profit from the future price movements of underlying assets, or to hedge against risk with other assets they own.

What are different types of underlying assets?

The different types of underlying assets may include stocks, bonds, index funds (especially ETFs), global currencies, and commodities like gold and oil. These assets are generally chosen for their liquidity, volatility, and their role as the foundation for various derivatives trading strategies.

Are gold and silver considered underlying assets?

Yes, gold, silver, and other precious metals may serve as underlying assets in derivatives contracts. Precious metals are considered commodities, and derivatives are frequently based on these and other types of commodities, such as oil, gas, and agricultural products. Due to their historical volatility, commodities like gold and silver are often desirable for derivative traders, though these trades entail significant risk.

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SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.

Mutual Funds (MFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Nov
02
2025
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What Is an Interest Checking Account and How Does It Work?

By | Budgeting & Goals, Family Finances, money | Comments Off on What Is an Interest Checking Account and How Does It Work?

An interest checking account is, as the name suggests, a checking account that earns interest. Typically, checking accounts haven’t offered this feature, while savings accounts did. However, there are a number of interest-bearing checking accounts now available that can help your cash on deposit grow.

Typically more flexible than savings accounts, interest checking can give you a financial boost if they’re a good fit for you. In some cases, however, they may have minimum requirements and other aspects that may not sync up with your money style.

An interest checking account is, as the name suggests, a checking account that earns interest. Typically, checking accounts haven’t offered this feature, while savings accounts did. However, there are a number of interest-bearing checking accounts now available that can help your cash on deposit grow.

Typically more flexible than savings accounts, interest checking can give you a financial boost if they’re a good fit for you. In some cases, however, they may have minimum requirements and other aspects that may not sync up with your money style.

Here’s a closer look at these interest-bearing checking accounts, so you can decide if one might be right for you.

Key Points

•   Interest checking accounts combine checking features with the ability to earn interest on your balance.

•   They often require minimum balances and may have fees that affect earnings.

•   Interest rates are generally lower than those of high-yield savings or money market accounts.

•   These accounts typically offer unlimited transactions and debit card use for flexibility.

•   Consider your financial goals and account terms before opening an interest checking account.

What Is an Interest Checking Account?

Whether it’s called an interest-bearing checking account, interest checking account, or high-yield checking, this is a type of checking account where the account holder can earn interest. The interest rate may not be amazingly high. According to the Federal Deposit Insurance Corporation (FDIC) as of October 2025, the rate averaged 0.07% APY, or annual percentage yield, which is the real rate one earns when compounding interest kicks in. (Occasionally, APYs of 1.00% to a few percentage points may pop up, sometimes on a promotional basis.) Even at the lower range, the interest accrued is better than nothing. Honestly, who doesn’t want to earn more interest?

There may, however, be a catch:

•   Although the account will pay an APY, account holders may be required to pay monthly maintenance fees or maintain a certain account balance (say, $500 or more).

•   In addition, you may be required to receive a certain number of or dollar amount of direct deposits per month or meet other criteria, such as relating to debit card usage.

•   You might also have to pay a monthly account fee; again, it depends on the bank you choose. Recent research found that checking accounts had an average monthly fee of $10.95 to $16.35; where an interest account will fall can vary with the financial institution.

•   One more point: In many cases, interest checking accounts earn less interest compared to savings accounts.Yes, a checking account has added flexibility that may be beneficial (say, unlimited transactions and debit-card and check-writing features), but it’s worth noting. You might consider a combined checking and savings account to get the best of both worlds.

How Do Interest-Bearing Checking Accounts Work?

These types of accounts work in a similar way to other kinds of checking accounts. Account holders can make deposits at ATMs, online, by direct deposit, or at branch locations depending on the financial institution.

As for withdrawals, account holders can make bank transfers, withdraw cash from an ATM, write a check, use bill pay, or pay for purchases with a debit card. The only difference is that, instead of earning no money on your balance, you will accrue some interest, usually on a monthly basis.

How Are Interest Checking Accounts Different Than Other Checking Accounts?

The truth is, checking account interest rates will vary depending on the type of account and the financial institution. On average, as noted above, banks offer an APY of 0.07%. There are high-yield checking accounts that could pay more, but these rates are generally still lower than what you could earn with a savings account. That said, with a little research, you might find an interest checking APY of 0.50% to 1.00% or higher at this time, especially at online banks. Those couple of extra points of interest may well be worthwhile as part of your plan to grow your wealth.

Just be sure to note the account requirements, as mentioned above. If you have to keep more money in the account that is comfortable for your budget and cash flow, you could wind up incurring late fees elsewhere in your financial life.

Here’s an example:

•   Perhaps you decide to pay your credit card bill late because you didn’t want your checking account balance to dip below the minimum to earn interest.

•   You opt to wait for your next paycheck to hit before you send your payment to your card issuer.

•   The credit card fee for the late payment is likely more than the interest you’re earning on the money in your checking account.

So in this situation, keeping your money in an interest checking account might not be a win-win for you.

Common Account Requirements for Interest Checking Accounts

When it comes to opening an interest-bearing checking account, there may be some requirements to wrangle. Keep the following factors in mind:

•   Minimum-balance and other account requirements: When you open an account, some financial institutions may require a minimum initial deposit. Current offers for interest-bearing checking range from zero dollars to $500 and occasionally significantly higher amounts as a minimum deposit. Shop around to find the right account for your needs.

   Plus, as mentioned above, you may need to maintain a certain balance in order to avoid fees. There may also be other rules such as the amount of transactions you can make on your debit card.

•   Fees: Some interest checking accounts may charge monthly fees, as described earlier in this article, which could eat into the interest you earn. You may have to keep a higher balance in your account to avoid fees. Other fees to consider are overdraft fees, and whether you’ll need to pay third-party network fees to access certain ATMs.

•   Application requirements: Depending on the financial institution, you may be required to submit documents such as your Social Security number, proof of address, and government-issued photo ID. If you want to open a checking account with a credit union, you’ll most likely need to become a member.

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*Earn up to 4.30% Annual Percentage Yield (APY) on SoFi Savings with a 0.70% APY Boost (added to the 3.60% APY as of 11/12/25) for up to 6 months. Open a new SoFi Checking & Savings account and enroll in SoFi Plus by 1/31/26. Rates variable, subject to change. Terms apply here. SoFi Bank, N.A. Member FDIC.

Advantages and Disadvantages of Interest Checking Accounts

An interest checking account may not be the best option for you. Consider the following advantages and disadvantages before opening an account.

Advantages of Interest Checking Accounts

Here, the upsides of interest checking:

•   You’ll earn interest Most traditional checking accounts won’t pay you any interest, but with an interest-bearing one, you’ll earn high interest. That means your money will help you earn some money while it’s sitting in the account. Typical APYs can range from 0.50% to 3.00% or higher.

•   You’ll have more flexibility Checking accounts tend not to have transaction limits as you may with savings accounts or money market accounts. Plus, you can use checks and a debit card, offering you more flexibility to access your money.

Disadvantages of Interest Checking Accounts

Next, the downsides:

•   You may have to meet certain requirements Though there are some interest checking accounts that don’t have minimum balance requirements or monthly fees, some do. That means you could be on the hook for a monthly fee if you can’t meet account requirements. In some cases, these fees could negate the amount you earn in interest.

•   You may not get a high interest rate The interest you earn on a checking account tends to be lower compared to ones you earn from a high-yield savings account or money market account. But there are definitely exceptions to the rule: Some banks have offered as much as 3.00% APY or higher on interest checking accounts, so it can truly pay to shop around and see if you can snag one of those deals.


Where Can I Get an Interest Checking Account?

You can open an interest checking account at most financial institutions, including traditional and online banks, as well as credit unions. As mentioned before, you may be required to become a member of the credit union you want to open a checking account with.

When shopping around, look beyond interest rates. Other equally important factors to consider are:

•   Account features (access to your funds, for instance; when the interest accrues)

•   Account-holder benefits (are there other perks to being an account-holder, such as a sign-up bonus?)

•   ATM, overdraft, and other fees

•   Minimum opening deposit and account balance requirements to earn interest.

Is It Worth It to Get an Interest Checking Account?

Thinking carefully about your financial situation and goals should help you determine whether it’s worth getting an interest bearing checking account.

•   For those who want to keep a decent amount of money in a checking account to ensure bills and daily transactions are taken care of, it might be worth considering. Why not earn a bit of interest if you can find an account that doesn’t charge fees?

•   However, if you’re interested in having a stash of cash available for short-term or medium-term savings goals — as in, you’re not planning on making frequent withdrawals — then a high-yield savings or a checking and savings account might be the better choice.

•   If your goal is to save for long-term goals like retirement or a college fund for your child, then an investment account could be the way to go.

Recommended: Savings Calculator

The Takeaway

An interest-bearing checking account may be a good fit if you’re looking for an account for daily transactions that can grow your money a bit. It’s important to check the fine print to see if there are any minimum balance requirements and what the fees are. Comparing the potential interest to be earned with any fees that may be charged is a vital step before applying for an interest checking account.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.60% APY on SoFi Checking and Savings.

FAQ

How does an interest-based checking account work?

Interest-based checking accounts, or interest checking accounts, work like standard checking accounts and provide a good way to deposit and spend money. They offer some interest earnings, typically a fairly low percentage, which is a way to help your money on deposit grow.

Why am I getting interest on my checking account?

Not all financial institutions offer interest on checking accounts; many offer none at all. If your bank offers interest, it is a way to incentivize you to keep money on deposit with them. You might think of it as a reward, and you may typically find this perk at online banks.

What are the cons of interest accounts?

Interest accounts can have downsides as well as upsides. Disadvantages can include fluctuating interest rates and possible account requirements, such as a minimum initial balance or ongoing balance threshold to earn interest.

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SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Oct
27
2025

5 Popular Investing Trends to Watch in 2025

By | Growing Wealth, Investing | Comments Off on 5 Popular Investing Trends to Watch in 2025

Due to advances in artificial intelligence (AI) technology, as well as significant economic shifts and demographic changes, there are five top investing trends to know about in 2025.

These include the proliferation of AI and digital infrastructure; the impact of longevity on health care and other sectors; a continued interest in alternative assets; the importance of risk management; and renewed signs of life in the real estate sector.

As the 2025 SoFi Investor survey reveals, investors may or may not follow these specific trends, but respondents seem optimistic about investing overall, and interested in developing aspects of their own long-term strategies.

Key Points

•   Five top investing trends for 2025 include AI, longevity-related industries, alternative assets, risk management, and real estate.

•   Despite geopolitical turmoil, investors surveyed for the 2025 SoFi Investor Survey show optimism and a willingness to adapt their strategies.

•   The rapid advancement of AI presents opportunities and challenges, with AI funds reaching record highs but also raising concerns about volatility.

•   Alternative investments are gaining renewed focus among investors due to their potential for diversification and higher returns, despite being higher risk.

•   Investment trends are not guarantees of seeing a profit. Investors must research trends and consider them in light of their own financial goals and risk tolerance.

Investor Sentiment in 2025: A Shift in Strategy

In the last few years, investors have faced geopolitical turmoil, higher-than-average inflation and interest rates — and more recently, global trade and tariff issues. Nonetheless, the investors who responded to the 2025 SoFi Investor survey revealed a sense of optimism, and an ability to manage stress in light of these volatile times.

Investor Confidence

Of the 1,000 individuals surveyed, over two-thirds (68%) plan to expand or shift their investing strategies in the coming months, and 65% feel optimistic or content about their strategies — both signals of investor confidence.

In a similar spirit, although inflation has been at historic highs, only 19% of investors said they were investing less in their portfolios — and 82% either wanted to invest more or maintain their holdings.

And a striking 40% said they didn’t experience stress in relation to market ups and downs.

Following are some of the leading investment trends that investors may be watching as 2025 draws to a close and 2026 comes into focus.

1. The Rapid Advance of Artificial Intelligence

As artificial intelligence technology has continued to skyrocket, the impact of these innovations and the widespread adoption of AI across industries has presented opportunities for investors, as well as challenges.

While global assets in AI funds reached a record $5.5 billion in Q2 of 2025, according to Morningstar, this rapid growth has also been met with concerns about capacity, energy needs, and the possibility of a bubble.

Nonetheless, AI has a strong appeal for investors, owing to its potential for growth. Investors must also consider the volatility in this industry, as well. This may be one reason investors seem to favor U.S. AI-focused ETFs than, say, stocks, according to Morningstar — given that AI ETFs may provide greater diversification as well as access to thematic investing.

2. A Renewed Focus on Alternative Investments

Investors were pursuing alternative assets at a record pace throughout 2024 and into early 2025, according to Morningstar. This trend is echoed by the sentiment reflected in the SoFi Investor Survey, where some 47% of respondents said that they invest in alternatives.

The Accessibility of Alts

Alternatives tend not to be correlated with traditional assets like stocks and bonds, and as such they can offer some portfolio diversification. Alternative assets were once restricted to qualified investors, but are increasingly available to ordinary investors through certain types of ETFs and other instruments.

Examples of alternative investments include tangible assets like real estate and commodities, as well as collectibles like art and antiques.

But alternative assets may also refer to the use of specific strategies: e.g., hedge funds, derivatives, and venture capital, as well as private market investments.

These assets may deliver higher returns when compared with conventional assets, but they are considered higher risk, owing to the lack of transparency, lower levels of regulation, lack of liquidity, and other risk factors investors may want to consider.

3. The Implications of Greater Longevity

People are living longer, with adults over age 65 projected to reach nearly a quarter (23%) of the U.S. population in the coming 30 years, according to the Pew Research Center. The result of this increased longevity has been a steady expansion of the science, technology, and business of living longer — with some estimates putting the global longevity market at $600 billion by the end of 2025.

While many investors are aware of advances in health care and medicine, the longevity market has expanded to include consumer goods, travel, computer and mobile technologies, caregiving services, housing developments, and more. Investing in longevity has obvious societal benefits, many of which may enable people to live longer as well as healthier and more rewarding lives.

That said, for all its focus on aging, the longevity sector itself is young — and from an investing perspective, it may be difficult to predict the winners and losers in the years to come. Nonetheless, this is a trend that’s unlikely to reverse, and investors may want to keep an eye on the opportunities emerging here.

Recommended: Investing in Commodities

4. New Approaches to Portfolio Risk Management

In the face of market swings, the majority of investors surveyed by SoFi (73%) chose to hold onto their assets rather than sell. This focus on staying the course is an important component of overall portfolio risk management, especially in light of ongoing volatility in many sectors.

Some tried-and-true strategies for managing portfolio risk factors include diversification, using dollar-cost averaging, and lowering overall portfolio volatility by rebalancing and similar approaches.

It’s also possible to gain a deeper understanding of one’s actual risk tolerance by seeking out a professional portfolio risk analysis, which can stress-test the holdings in your portfolio, and may provide insights about ways to adjust your investments.

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*Customer must fund their Active Invest account with at least $50 within 45 days of opening the account. Probability of customer receiving $1,000 is 0.026%. See full terms and conditions.

5. Navigating a Shifting Real Estate Market

The real estate market will continue to be an area of focus for investors and potential homebuyers in 2025 and into 2026, largely owing to pent up demand while interest rates were high.

If interest rates continue to decrease as anticipated, the real estate and home building markets may see renewed growth — although the ongoing impact of tariffs on sector supplies such lumber, appliances, metals, and other goods could be significant.

As the SoFi Investor Survey revealed, some investors are intrigued by real estate opportunities, with 15% saying they have real estate investments, and 11% specifically invested in real estate investment trusts (REITs).

Recommended: Pros & Cons of Investing in REITs

As noted above, investing trends are not a guarantee of success; they’re simply broader market movements that a wider swath of investors may be participating in at the moment. But as with trends in fashion or music or politics, investors must decide for themselves whether an investment trend is worth considering.

Do Your Own Research

One important way to evaluate investment trends is by doing your own research. Basic reading helps to keep investors informed about relevant news and industry factors that could impact a trend.

It’s also wise to compare a current trend in light of a company’s or fund’s actual performance and fundamentals. Some investments are poised to benefit from a trend, whereas others are not.

Align Trends With Your Long-Term Goals and Risk Tolerance

Above all, investing in a certain trend only makes sense when it aligns with your overall goals, your financial circumstances, and your risk tolerance.

By their very nature, trends are not necessarily going to last. There may be short-term opportunities investors can consider, or a trend may evolve in such a way that an investor may find it worthwhile to stick with it. That will depend on the trend and on the individual.

The Takeaway

Putting hard-earned dollars into any investment — whether it’s trendy or traditional — requires careful thought and due diligence. Investors should be aware that, while momentum can feed investment fads for long periods, some market trends can become vulnerable because of frothy valuations and turn on a dime.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).


Invest with as little as $5 with a SoFi Active Investing account.

FAQ

How can I add AI exposure to my portfolio?

There are many ways to invest in artificial intelligence, including individual stocks as well as ETFs. Investors may also want to consider the range of industries involved in AI and/or using this technology, from big data analysis to large language models to sectors such as media and healthcare, which are integrating AI technology.

What are the risks of investing in trends?

Trends can be higher risk in many cases, simply because most trends are driven by investor emotion, not company financials.

How are investors coping with market stress?

According to the SoFi Investor Survey, while 40% of investors say the markets don’t stress them out, others have multiple coping strategies, including talking to their broker, doing market research, and not checking their account balances.

Photo credit: iStock/MicroStockHub

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

Dollar Cost Averaging (DCA): Dollar cost averaging is an investment strategy that involves regularly investing a fixed amount of money, regardless of market conditions. This approach can help reduce the impact of market volatility and lower the average cost per share over time. However, it does not guarantee a profit or protect against losses in declining markets. Investors should consider their financial goals, risk tolerance, and market conditions when deciding whether to use dollar cost averaging. Past performance is not indicative of future results. You should consult with a financial advisor to determine if this strategy is appropriate for your individual circumstances.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Black glasses rest on a background split between vibrant magenta and teal to help the user learn about flexible spending accounts.

What Is a Flexible Spending Account?

By | Budgeting & Goals, Building Your Career, Life & Career | No Comments

Whether you’re purchasing a new pair of eyeglasses, stocking up on over-the-counter medications, or paying for your child’s daycare, there may be certain expenses your health insurance plan doesn’t cover.

In those cases, having a flexible spending account, or FSA, could help you save money. This special savings account lets you set aside pretax dollars to pay for eligible out-of-pocket healthcare expenses, which in turn can lower your taxable income.

Let’s take a look at how these accounts work.

Key Points

•   A Flexible Spending Account (FSA) is a tax-advantaged account that allows you to set aside pre-tax dollars for eligible medical expenses.

•   There are annual contribution limits for FSAs, which are set by the IRS and can vary each year.

•   Funds in an FSA generally must be used within the plan year, or you may lose them, though some plans offer a grace period or carryover option.

•   FSAs can be used for a wide range of medical expenses, including copayments, deductibles, prescription medications, and over-the-counter drugs (with a doctor’s note).

•   FSAs are typically offered through employers, and both employees and employers can contribute to the account.

What Is an FSA?

An FSA is an employer-sponsored savings account you can use to pay for certain health care and dependent costs. It’s commonly included as part of a benefits package, so if you purchased a plan on the Health Insurance Marketplace, or have Medicaid or Medicare, you may no longer qualify for a FSA.

There are three types of FSA accounts:

•   Health care FSAs, which can be used to pay for eligible medical and dental expenses.

•   Dependent care FSAs, which can be used to pay for eligible child and adult care expenses, such as preschool, summer camp, and home health care.

•   Limited expense health care FSA, which can be used to pay for dental and vision expenses. This type of account is available to those who have a high-deductible health plan with a health savings account.

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How Do You Fund an FSA?

If you opt into an FSA, you’ll need to decide on how much to regularly contribute throughout the year. Those contribution amounts will be automatically deducted from your paychecks and placed into the account. Whatever money you put into an FSA isn’t taxed, which means you can keep more of what you earn.

Your employer may also throw some money into your FSA account, but they are under no legal obligation to do so.

You can use your FSA throughout the year to either reimburse yourself or to help pay for eligible expenses for you, your spouse, and your dependents (more on that in a minute). Typically, you’ll be required to submit a claim through your employer and include proof of the expense (usually a receipt), along with a statement that says that your regular health insurance does not cover that cost.

Some employers offer an FSA debit card or checkbook, which you can use to pay for qualifying medical purchases without having to file a reimbursement claim through your employer.


💡 Quick Tip: When you have questions about what you can and can’t afford, a spending tracker app can show you the answer. With no guilt trip or hourly fee.

What Items Qualify for FSA Reimbursement?

The IRS decides which expenses qualify for FSA reimbursement, and the list is extensive. Here’s a look at some of what’s included — you can see the full list on the IRS’ website.

•   Health plan co-payments and deductibles (but not insurance premiums)

•   Prescription eyeglasses or contact lenses

•   Dental and vision expenses

•   Prescription medications

•   Over-the-counter medicines

•   First aid supplies

•   Menstrual care items

•   Birth control

•   Sunscreen

•   Home health care items, like thermometers, crutches, and medical alert devices

•   Medical diagnostic products, like cholesterol monitors, home EKG devices, and home blood pressure monitors

•   Home health care

•   Day care

•   Summer camp

Are There Any FSA Limits?

For 2025, health care FSA and limited health care FSA contributions are limited to $3,300 per year, per employer. Your spouse can also contribute $3,300 to their FSA account, as well.

Meanwhile, dependent care FSA contributions will be increased to $7,500 per household, or $3,750 if you’re married and filing separately, on January 1, 2026.

Does an FSA Roll Over Each Year?

In general, you’ll need to use the money in an FSA within a plan year. Any unspent money will be lost. However, the IRS has changed the use-it-or-lose-it rule to allow a little more flexibility.

Now, your employer may be able to offer you a couple of options to use up any unspent money in an FSA:

•   A “grace period” of no more than 2½ extra months to spend whatever is left in your account

•   Rolling over up to $660 from 2025 to use in the 2026 plan.

Note that your employer may be able to offer one of these options, but not both.

One way to avoid scrambling to spend down your FSA before the end of the year or the grace period is to plan ahead. Calculate all deductibles, copayments, coinsurance, prescription drugs, and other possible costs for the coming year, and only contribute what you think you’ll actually need.

Recommended: Flexible Spending Accounts: Rules, Regulations, and Uses

How Can You Use Up Your FSA?

You can consider some of these strategies to get the most out of your FSA:

•   Buy non-prescription items. Certain items are FSA-eligible without needing a prescription (but save your receipt for the paperwork!). These items may include first-aid kits, bandages, thermometers, blood pressure monitors, ice packs, and heating pads.

•   Get your glasses (or contacts). You may be able to use your FSA to cover the cost of prescription eyeglasses, contact lenses, and sunglasses as well as reading glasses. Contact lens solution and eye drops may also be covered.

•   Keep family planning in mind. FSA-eligible items can include condoms, pregnancy tests, baby monitors, and fertility kits. If you have a prescription for them, female contraceptives may also be covered.

•   Don’t forget your dentist. Unfortunately, toothpaste and cosmetic procedures are not covered by your FSA, but dental checkups and associated costs might be. These could include copays, deductibles, cleanings, fillings, X-rays, and even braces. Mouthguards and cleaning solutions for your retainers and dentures may be FSA-eligible as well.


💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.

Flexible Savings Account (FSA) vs. Health Savings Account (HSA)

When it comes to managing healthcare costs, another popular option is a health savings account (HSA). Both FSAs and HSAs offer tax advantages, but they differ in terms of eligibility, contribution limits, and how the funds can be used.

Both types of accounts:

•   Offer some tax advantages

•   Can be used to pay for co-payments, deductibles, and eligible medical expenses

•   Can be funded through employee-payroll deductions, employer contributions, or individual deductions

•   Have a maximum contribution amount. In 2025, people with individual coverage can contribute up to $4,300 per year, while those with family coverage can set aside up to $8,550 per year.

That said, there are some key differences between HSAs and FSAs:

•   You must be enrolled in a high deductible health plan in order to qualify for an HSA.

•   HSAs do not have a use-it-or-lose-it rule. Once you put money in the account, it’s yours.

•   If you quit or are fired from your job, your HSA can go with you. This happens even if your employer contributed money to the account.

•   If you’re 55 or older, you can contribute an additional $1,000 to your HSA as a catch-up contribution — similar to the catch-up contributions allowed with an IRA.

•   If you withdraw money from your HSA for a non-qualified expense before the age of 65, you’ll pay taxes on it plus a 20% penalty.

•   If you withdraw money from your HSA for any type of expense after age 65, you don’t pay a penalty. However, the withdrawal will be taxed like regular income.

Recommended: Benefits of Health Savings Accounts

The Takeaway

Flexible spending accounts are offered by employers and can be a useful tool for paying for health care or dependent-related expenses. Notably, you fund the account with pretax dollars taken from your paycheck, which can lower your taxable income and help you save money.

You typically need to spend your FSA money within a plan year, though your employer may give you the option to either roll over a portion of the balance into the next year or use it during a grace period. There are also guidelines around what you can spend the FSA funds on and how much you can contribute to your account.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

How does a flexible spending account work?

A flexible spending account (FSA) lets you set aside pretax money from your paycheck to cover eligible medical, dental, vision, or dependent care expenses. Because contributions reduce your taxable income, you save on taxes.

What is the difference between an FSA and an HSA?

The main difference between an FSA and an HSA is ownership and eligibility. FSAs are employer-owned and require you to spend funds within the plan year, while HSAs are individually owned, available only with high-deductible health plans, and allow funds to roll over and grow tax-free year after year.

Can I withdraw money from my flexible spending account?

Yes, you can withdraw money from your flexible spending account (FSA) to pay for eligible medical expenses such as copays, prescriptions, and medical supplies. However, withdrawals must be for qualified expenses.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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22
2025
What Are Trading Index Options?

What Are Index Options?

By | Growing Wealth, invest, Investing | Comments Off on What Are Index Options?

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

While stock options derive their value from the performance of a single stock, index options are derivatives of an index containing multiple securities. Indexes can have a narrow focus on a specific market sector, or may track a broader mix of equities. They’re listed on option exchanges and regulated by the Securities and Exchange Commission (SEC) in the U.S.

Like stock options, the prices of index options fluctuate according to factors like the value of the underlying securities, volatility, time left until expiration, strike price, and interest rates. Unlike stock options, which are typically American-style and settled with the physical delivery of stocks, index options are typically European-style and settled in cash.

Key Points

•   Index options are derivatives based on market indexes, typically cash-settled and European-style.

•   Index options are typically cash-settled and can only be exercised at expiration, unlike stock options which are often exercised early and settled with shares.

•   Authorization from a brokerage is required to trade index options, and understanding risks is crucial.

•   Index options offer broad market exposure, with trading hours and settlement methods differing from stock options.

•   Trading levels range from simple covered calls and protective puts to high-risk naked options, each with specific requirements.

What Is An Index Call Option?

An index call option is a financial derivative that reflects a bullish view on the underlying index. They provide the buyer the right to receive cash if the index rises above the strike price on expiration. An investor who buys an index call option typically believes that the index will rise in value. If the index increases in value, the call option’s premium may also increase before expiration.

Before trading index options, it may be a good idea to make sure you have a solid understanding of what it means to trade options in a broader sense. It can be a complex, technical segment of the financial market.

💡 Quick Tip: In order to profit from purchasing a stock, the price has to rise. But an options account offers more flexibility, and an options trader might gain if the price rises or falls. This is a high-risk strategy, and investors can lose money if the trade moves in the wrong direction.

What Is An Index Put Option?

An index put option is a contract that reflects a bearish outlook. An investor who buys this derivative typically expects that its underlying index will decline in value during the life of the contract.

Differences Between Index Options and Stock Options

In addition to the fact that index options are based on the value of an underlying index as opposed to a stock, there are several other key differences between trading index options and stock options.

Trading Hours

Broad-based index options typically stop trading at 4:15pm ET during regular trading hours, with certain contracts on indexes eligible to continue trading from 4:15pm to 5:00pm ET. Some index options offer global trading hours from 8:15am-9:15am ET the following day.

When significant news drops after the market closes, it may affect the prices of narrow-based index options and stock options. Broad-based indexes may be less likely to be affected, as they typically reflect a more diversified mix of sectors within the index.

Recommended: When Is the Stock Market Closed?

Settlement Date and Style

While stock options use the American-style of exercise, which allows holders to exercise at any point leading up to expiration, most index options have European-style exercise, which allows exercise only at expiration (with some exceptions). That means the trader can’t exercise the index option until the expiration date. However, traders can still close out their index option positions by buying or selling them throughout the life of the contract.

As for settlement date, most stock index options usually stop trading on the Thursday before the third Friday of the month, with the settlement value typically determined based on Friday morning prices and processed that same day. Stock options, by contrast, have their last trading day on the third Friday of the month, with settlement typically processed the following business day.

Settlement Method

When settling stock options, the underlying stock typically changes hands upon the exercise of the contract. However, traders of index options typically settle their contracts in cash.

That’s because of the large number of securities involved. For example, an investor exercising a call option based on the S&P 500 would theoretically have to buy shares of all the stocks in that index.

What Are Options Trading Levels?

Some options trading strategies are more straightforward and may involve relatively lower investment risk compared to others. But there are ways to use options that can get rather complicated and may carry substantial risk. These strategies can typically be used with index options, though they may be subject to different expiration rules and brokerage approval standards. Some basic strategies (like buying puts) are widely accessible, while more complex trades involving spreads or uncovered positions also exist.

To help ensure investors are aware of the risks associated with various strategies, brokerages have something called options trading levels. Brokerages have enacted these levels to try to deter new investors from trading options they may not fully understand and experience significant losses in a short period.

If a brokerage determines that an investor faces a lower risk of seeing significant losses, and has the level of experience needed to manage risk, they can assign that investor a higher options trading level. Higher options levels open up a user’s account to additional investment strategies, which may enable them to trade different types of options.

Most brokerages offer four or five trading levels. Reaching all but the highest level usually requires completing a basic questionnaire to assess an investor’s knowledge.

Options Trading Level 1

This is the lowest level and typically allows a user to trade the simplest options only, such as covered calls and protective puts. A covered call is when an investor writes an out-of-the-money call option on stocks they own, and a protective put is when an investor buys put options on stocks already held.

These strategies require the trader to hold shares of the underlying stock, which may make these trades less risky than many others. There is also only one option leg to worry about, which can make executing the trade much simpler in practice.

Options Trading Level 2

Level 2 typically grants the right to buy calls and puts. The difference between level 2 and level 1 is that traders at level 2 can take directional positions. Most new traders are typically approved to start at this level.

Options Trading Level 3

At level 3, more complex strategies may become available. This level usually includes approval and margin to trade debit spreads. Though relatively complicated to execute, debit spreads may limit risk since the trader’s maximum loss is usually capped at the cash paid to buy the necessary options.

Options Trading Level 4

Level 4 may include permission to trade credit spreads, and is sometimes included in level 3 (in which case the brokerage would have only 4 levels). A credit spread functions similarly to a debit spread, although the trader receives a net premium upfront.

Calculating potential losses can be more complicated at this level. It is here that novice traders may inadvertently take on tremendous risk.

Options Trading Level 5

Level 5 involves the highest risk and may permit traders to write call options and put options without owning shares of the underlying stock. These trades expose investors to potentially unlimited losses and may be suitable only for very experienced options traders.

The most important requirement of level 5 is that an investor maintains sufficient margin in their account. That way, if an options trade moves against the investor, the broker can use the margin account to help cover potential losses.

Recommended: What Are Naked Options?

What Happens to Index Options On Expiry?

Most index options have a European-style exercise, although some index option series may differ. This means traders can only execute them at expiration. Investors may want to research which type of settlement their index options have before making a trade.

Upon expiration, the Options Clearing Corporation (OCC) may assign the option to one or more Clearing Members who have short positions in the same options. The Clearing Members may assign the option to one of their customers.

The index option writer is then responsible for paying any cash settlement amount. Settlement usually takes place on the next business day after expiration.

💡 Quick Tip: Before opening any investment account, consider what level of risk you are comfortable with. If you’re not sure, start with more conservative investments, and then adjust your portfolio as you learn more.

How to Trade Index Options

Trading index options may be one type of investment to consider as part of a broader diversified portfolio. For the most part, trading index options works like trading any other option. The big difference is that the underlying security will be an index, rather than a stock.

Here are a few basic steps that investors can consider when starting to trade index options.

•  Request authorization from your brokerage for options trading

•  Review how option chains are reflected in your brokerage account

•  Study different option trading strategies and consider those that align with your level of expertise

•  Before trading, develop a strategy for managing risk and closing out positions, if needed.

•  Place a trade through your brokerage platform’s options account and monitor your trades.

The Takeaway

Index options are similar to stock options in that they are both financial derivatives. They are rooted in indexes, though, which typically reflect a segment or sector. Trading options and index options is a more complex strategy involving higher risk, and may not suit every investor’s risk tolerance.

Index investing with index options could appeal to investors looking to hedge their portfolios with alternative or derivative-based investments.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

Explore SoFi’s user-friendly options trading platform.

Frequently Asked Questions

What are examples of index options?

Examples of index options include contracts based on the S&P 500 (SPX), Nasdaq-100 (NDX), and Russell 2000 (RUT). These index options let traders take positions on overall market segments rather than individual stocks. Index options are typically cash-settled and European-style, meaning they may only be exercised at expiration.

What is the difference between stock options and index options?

Stock options are tied to individual companies and often involve share delivery. Index options, on the other hand, track a broader market index and are usually cash-settled. Most stock options are American-style, whereas index options are commonly European-style, meaning they can only be exercised at expiration.

What is the risk of index options?

Index options carry risks, including the potential for significant losses. Sudden shifts in economic conditions can affect their value, given that they track broad market movements. Strategies like selling uncovered options can involve high risk and aren’t suitable for all investors.

What are S&P 500 index options?

S&P 500 index options (SPX) are contracts based on the S&P 500. They’re cash-settled, European-style, and commonly used to hedge or speculate on overall market performance. SPX options are popular for their liquidity and broad market exposure.

Photo credit: iStock/kate_sept2004

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.

Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

S&P 500 Index: The S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an investment product, but a measure of U.S. equity performance. Historical performance of the S&P 500 Index does not guarantee similar results in the future. The historical return of the S&P 500 Index shown does not include the reinvestment of dividends or account for investment fees, expenses, or taxes, which would reduce actual returns.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

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