ETF Options Vs. Index Options


Given this outlook, a Bull Call Spread options strategy on the SPDR S&P ETF (SPY - Free Report) might be worthwhile, especially given the recent pattern it has exhibited.

Like Terry's Tips on Facebook. I set up and discuss the trades and then follow them up with periodic reviews until they close. While ETFs have become immensely popular in a very short period of time and have proliferated in number, the fact remains that the majority of ETFs are not heavily traded.

What is an ETF?

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. There are several ways you can find ETFs that offer options.

The 10K Strategy does best when the stock does not gyrate wildly. At certain times, most individual companies are subject to sudden wide swings in their stock prices. Earnings are announced, and the company either exceeds or fails to meet expected results, and the stock moves accordingly.

An analyst upgrades or downgrades the stock unexpectedly, and the stock makes a big move. Sudden price changes in the stock can result in losses when using the 10K Strategy , so we prefer to trade on a basket of stocks like XLF rather than an individual company.

That way, if one company has a big swing in stock price, the effect on the total basket of stocks is usually minimal. I call my system the 10K Strategy. It is somewhere between a boring buy-and-hold strategy and day-trading. It is not a marathon — you do not have to wait forever to see results. Neither is it a sprint, dependent on short-term increases in the price of the stock. Like any race, it takes a little effort to execute. But the extraordinary profit potential makes it all worth while, at least to my way of thinking.

A Simple Options Strategy: The 10K Strategy is based on the simple fact that all options become less valuable every day if the stock stays flat , but short-term options go down in value decay at a faster rate than long-term options. I purchase slower-decaying long-term options and use them as collateral to sell faster-decaying short-term options to someone else.

If the stock stays flat, I always win. But as we know, all stocks do not stay flat. Some good stocks, like XLF, actually go up much of the time. Having a good feeling about a stock and being right makes the 10K Strategy even more profitable than just enjoying the option decay advantage. If the stock goes up, I can make more with the 10K Strategy than I ever could with the stock alone. The strategy consists of calendar spreads at several different strike prices both above and below the stock price , with differing numbers of spreads at different strikes depending on your personal risk tolerance , often involves puts rather than calls even if you are bullish on the stock , and is governed by a strict set of Trading Rules that determine when adjustments need to be made.

Does the 10K Strategy make money all the time? But it is close. To check how the portfolio has performed since that time, go to our Track Record page. It all sounds too complicated — can you manage the 10K Strategy for me? I publish an options newsletter, and am not a licensed investment advisor. The White Paper costs less than a meal for two at a decent restaurant. It gives you all the information you will need to execute the 10K Strategy, and set up, and maintain, a portfolio that matches the degree of risk that you are comfortable taking.

Complete Trading Rules for every risk level portfolio are included as well. And there is more. If you wish, you can mirror one or more of these portfolios in your own account, or sign up for Auto-Trade with thinkorswim , Inc. You can figure out all these numbers precisely, before you make the investment. Once you have become an Insider by buying the White Paper , you will have access to several valuable reports on a variety of option strategies, many of which you will not be able to find in any books on options.

All this for less than the cost of a meal for two at a decent restaurant. And once you put the strategy to work, you might well be spending many pleasant evenings at better-than-decent restaurants for the rest of your life. It did to me, and I want to pass on my learning experiences to you. Here is the link that could change the way you invest your money for the rest of your life - https: If you are not convinced that now is the right time to make this investment in yourself, at least sign up for my free newsletter.

For more information about the "Lazy Way" strategy to double your money, click Tip 5. For more information about options in general, click Tip 1. But the most important link is right here - https: That is where you can order my White Paper and maybe change how you ever thought about investing for the rest of your life. We use this list in one of our options portfolios to spot outperforming stocks and place option spreads that take advantage of the momentum.

Other portfolios we conduct for paying subscribers have done better, but we are proud of this one as well. These following two articles discuss the recent earnings report and where the stock may go from here - Adobe: Despite a recent correction, market sentiment towards Netflix stock remains positive while certain analysts see a notable upside from current levels.

Markets Closed For Thanksgiving Day. The best option to pick is one that has a Delta between 70 and This is so that you are not buying the most expensive options, but you are still going to capture the movement of the stock as much as possible. You also need to pick an option that is about two months from expiry, so that time decay does not have too drastic an effect. In any case, you will be in and out of the trade so quickly that time decay should not be significant.

Set an entry for the trade somewhere near the lower end of the daily trading range, or wait for a one or two day pull back before entering. As soon as you have entered the trade, the first and most important step is to set up a stop loss.

Only stupid and irresponsible traders work without stop losses, especially when dealing with options. The first rule of options trading is to minimise your losses!

Quite often this will be filled within a day or two, which means that you get to do another trade. The time requirements are not too demanding, and the process can be somewhat automated.

Add your comments below and let me know what you think about trading DITM options? Has it been a worthy investment for you? Did you run into any snags? Guest Post by Rob Forbes.