Index Options vs. ETF counterpart

Quote from syswizard:

Thanks, but you misunderstood me...the statement was two parts: one part indicating I can get the same dollar effect with 1/3 of the number of contracts. The second part was thrown in to show that commissions are 1/3 as well. Now I see why brokers LOVE ETF's and ETF options.
More...

Ok, but it still doesn't make sense. IWM is about 1/10th the size of the RUT so 1 RUT contract is equal to 10 IWM contracts, yet IWM options are about 10 times cheaper than the equivalent RUT, so it all evens out.

Could you give an example?
 
ETF options are a low cost way to do what you can do with full index options. Why waste all of that money to buy one SPX contract when you can buy multiple SPDR Options instead? This opens up index investing to a whole new world of retail investors that previously could not participate in index option trading.

Also, full index options are very large contracts. Sometimes, you just don't need all of those deltas. So why bite off more than you can chew? Use ETF options and get the exact position size that you need.
 
indexes.png


This is just an approximation to give a general idea of what I am thinking. All of these indexes and ETF's have good liquidity. This does not include any adjustments. Just a hands off type of trade. Commissions do not have much effect because they are expensive enough. It takes little theta to pay for a four legged spread trade for the NDX, SPX and RUT. This makes even more of a difference for a butterfly. Basically it is NDX, SPX and RUT that are the favorites for options spread trading. You can still make money with the cheaper ETF's though. And if you make any mistakes with the larger indexes it can be a very expensive one. Execution is another factor in the big indexes. Market orders could be license to kill for market makers but in something like SPY you can get away with it.
The1256 contact is good for the cash settled indexes like the NDX, SPX and RUT. If you do say 100% a year this can mean another 12% in your pocket in tax savings. These are just my opinions. I could be wrong.
 
Dude - either you are BRILLIANT or I am STUPID. I don't understand the percentages you are showing.
I don't quite understand how you came to your conclusion either.
I do understand this however:
And if you make any mistakes with the larger indexes it can be a very expensive one.
More...
but I think that it relates to liquidity and spreads....which for the index options means larger spreads than correspondent ETFs.
 
You must log in or register to reply here.
Back
Top