There are a number of reasons to like ETFs. Similar to mutual funds, they allow you to access many parts of the market—stocks, bonds, sectors, industries, currencies, and more. Many ETFs are relatively low cost, and can be tax efficient. You can use them to build a diversified portfolio or implement a more targeted strategy. Plus, unlike mutual funds, ETFs trade intraday like stocks—potentially making them attractive to short-term, active traders, in addition to longer-term investors.
No wonder money has poured into the exchange-traded product (ETP) market, which is composed almost entirely of ETFs. In fact, US-based ETP assets under management have surged past $3 trillion in 2017 alone. That's a good and bad thing but for now, it's great for trading.
Implementing ETF options strategies
Suppose you have a strong view on the near-term direction of US large-cap stocks, but you didn’t want to invest a lot of your money in the market just yet. You could buy a SPDR S&P 500 ETF call, for example, which gives you the right, but not the obligation, to buy SPY at a predetermined price for a set time. SPY was the first and largest ETF, and it seeks to track the 500 largest US stocks. The primary reason for buying calls instead of buying shares is you have a lower cost basis. I talked about this on the Long Short Radio show today.
Finding ETF Options trading opportunities comes from the price chart. The idea is to really focus on the Index ETF's to start. It typically, for beginner option traders, makes it easier to follow. Thanks to a wide variety of ETFs available for investment, options investors may be able to take advantage of market outlooks in ways that were previously difficult to do using options. There are ETF options covering themes like market cap, sectors, global markets, commodities, interest rates, and volatility, affording investors a multitude of ways to utilize ETF options. Take a look below at a breakdown of using SPDR S&P 500 ETF options as a trade in the market betting on a bullish move.