Grow a Small Account Quickly with ETF Options
ETF Options when combined with the right options strategy, can be one of the best and safest ways to profit consistently from the financial markets. Here, we're going to explore some of the reasons why.
Firstly, ETFs, which is short for Exchange Traded Funds, are available for a wide range of markets including stock indexes, stock market sectors, various commodity sectors and currencies. This provides great versatility for the active trader because even though one market may be quiet at any given point in time, another one will be on the move. For example, the stock market may be going nowhere but a currency is trending, and so forth.
If you wanted to trade the currency or commodity markets, you would probably have to resort to futures, CFDs or forex pairs if you want the benefit of leverage. Trouble is, all these types of financial instruments carry unlimited risk - which means that should market price action turn against you, you can lose more than the amount you have risked on the trade.
The maximium risk with buying options on the other hand, is limited to the investment amount - and if your preference is to trade simple long options positions, ETF Options are your best choice.
Here's why:
1. Most ETF options have low implied volatility, which is what you want if you're buying options. This low IV also means that should the trade be going against you, your losses will be reduced because you have bought the options cheaply in the first place. Low IV also allows you to give yourself the gift of time for the trade to work out in your favour.
2. ETFs have no huge and sudden price surges that arise from news events such as earnings reports, management incompetence, product disasters, SEC investigations or the like. This is because they represent huge underlying, often broad based, markets, where the fortunes of individual companies can't affect the market as a whole.
3. ETF options are traded on high daily volume and since the underlying market is huge and broad based, price action cannot be manipulated by market makers. This allows you to leave the trade active and sleep at night.
4. Unlike individual companies, Exchange Traded Funds tend to trend in a predictable and fairly even manner. Once a trend is established, it is more likely to continue rather than whipsaw all over the place.
5. ETF options can be purchased for a few cents, which is very good for traders with small accounts. For a few hundred dollars you can set yourself up for many times that in profit. It also means there is no need to employ advanced options strategies along with their increased brokerage fees. You can just buy single options positions.
Firstly, ETFs, which is short for Exchange Traded Funds, are available for a wide range of markets including stock indexes, stock market sectors, various commodity sectors and currencies. This provides great versatility for the active trader because even though one market may be quiet at any given point in time, another one will be on the move. For example, the stock market may be going nowhere but a currency is trending, and so forth.
If you wanted to trade the currency or commodity markets, you would probably have to resort to futures, CFDs or forex pairs if you want the benefit of leverage. Trouble is, all these types of financial instruments carry unlimited risk - which means that should market price action turn against you, you can lose more than the amount you have risked on the trade.
The maximium risk with buying options on the other hand, is limited to the investment amount - and if your preference is to trade simple long options positions, ETF Options are your best choice.
Here's why:
1. Most ETF options have low implied volatility, which is what you want if you're buying options. This low IV also means that should the trade be going against you, your losses will be reduced because you have bought the options cheaply in the first place. Low IV also allows you to give yourself the gift of time for the trade to work out in your favour.
2. ETFs have no huge and sudden price surges that arise from news events such as earnings reports, management incompetence, product disasters, SEC investigations or the like. This is because they represent huge underlying, often broad based, markets, where the fortunes of individual companies can't affect the market as a whole.
3. ETF options are traded on high daily volume and since the underlying market is huge and broad based, price action cannot be manipulated by market makers. This allows you to leave the trade active and sleep at night.
4. Unlike individual companies, Exchange Traded Funds tend to trend in a predictable and fairly even manner. Once a trend is established, it is more likely to continue rather than whipsaw all over the place.
5. ETF options can be purchased for a few cents, which is very good for traders with small accounts. For a few hundred dollars you can set yourself up for many times that in profit. It also means there is no need to employ advanced options strategies along with their increased brokerage fees. You can just buy single options positions.
6. Since ETF options are available on securities other than stock market based instruments, (even though they behave like stocks, paying dividends and the like) you can use them when the stock market is showing price volatility.
For example, the Dow Jones might fall 300 points in one day, but on the same day, a commodities based ETF may rise moderately, or a currency based ETF may even trend upward. This allows investors to broaden their portfolio of positions so that they are not entirely at the mercy of the stock market.
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