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How Stocks Affect an Index

Options Jive

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Outlier moves in single stocks can cause large moves in indexes depending on the weightings of those stocks.

Recently, BA experienced a large outlier move which caused the Dow to sink significantly more than the S&P. The reason for this is because BA has a higher weight in the Dow.

The recent divergence may present pairs trading opportunities between the indices betting on them reverting to their normal correlation.

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