ETF loophole

C

Cornerstoned

Hello

I was reading on ETF's and the market maker creation/redemption process. It seems to me there is an major loophole, If I am an market maker, what is "really" stopping me from just buying an call option on the underlying equity instead of buying the equity itself? Also what are some of the reasons you personally hold ETF's instead of buying the underlying? Seems to be cheaper unless you were broke or wanted leverage
 
Cornerstoned said:
Hello

I was reading on ETF's and the market maker creation/redemption process. It seems to me there is an major loophole, If I am an market maker, what is "really" stopping me from just buying an call option on the underlying equity instead of buying the equity itself?
More...

nothing is stopping you from doing that. but if you're trying to create then you need to deliver the etf's underlying shares.
 
Cornerstoned said:
Hello

I was reading on ETF's and the market maker creation/redemption process. It seems to me there is an major loophole, If I am an market maker, what is "really" stopping me from just buying an call option on the underlying equity instead of buying the equity itself? Also what are some of the reasons you personally hold ETF's instead of buying the underlying? Seems to be cheaper unless you were broke or wanted leverage
More...
%%
I see 2 problems with your theory, C- stoned; you are not a market maker+ slippage
 
murray t turtle said:
%%
I see 2 problems with your theory, C- stoned; you are not a market maker+ slippage
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see my problem is I don't understand why anyone would personally buy ETFs

1)how is the market maker having slippage when they are making the market for the options of the ETFs themselves?
2)How can any individual investor know if they are really holding the underlying shares? If I buy an ETF what is stopping the market maker from simply buying the options and using the rest of the money for God knows what?
3)Why buy ETFS at all if you can buy the underlying equity?
 
An etf is a fund. The dow etf DIA needs to hold some percent of the components and cash; prospectus is online. Not sure where you are coming up with options. The etf MM makes markets in the etf and the underlyings then does creates / redeems. Thats the arb.

Buy an etf for diversity. Less volatility. Etc
 
options are a totally different vehicle with different properties ...
you are very much confused everything you write doesn't make sense ...
 
cvds16 said:
options are a totally different vehicle with different properties ...
you are very much confused everything you write doesn't make sense ...
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I'm sorry is English your first language?

What part of my question does not make sense to you?
 
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