Trading ETF Options
Trading ETF options is a simplified way to leverage your trading capital by using options without getting into a lot of sector or company research. The idea is to pick an index that has an ETF tracking stock and follow it. Get a feel for its average daily range and how much of a movement in the underlying index affects your options of choice, whether calls or puts.
Trading DIA Options
Lately, my ETF of choice is the DIA, also called Diamonds. This is a tracking stock designed to roughly track at 1/100 of the Dow Jones Industrial Index. Is the DJI a perfect indicator of The Market? No, of course not. It’s only 30 companies. Nevertheless, it’s the index that is most often thought of as The Market, so it’s not hard to keep up with what the index is doing. If the Dow has a 300 point down day, you’re probably going to hear about it pretty quickly, just because its big numbers are more dramatic than a comparable decline in the S&P 500.
Trading SPY Options
The S&P 500 is a good, broad index of The Market, and has a very tradable ETF called SPY. This ETF also has option contracts that can make very profitable trades.
Trading QQQQ Options
Formerly called QQQ, the QQQQ is the ETF tracking stock of the Nasdaq 100. The QQQQ is eminently tradable as a fairly volatile proxy for tech stocks. Option contracts are also very liquid, which helps to get in and out of positions with ease.
