Most options traders including covered call writers are familiar with exchange-traded funds ETFs and many trade options on these securities. Many have also heard of, but are not as familiar with, index options. The purpose of this article is to detail the differences between ETF option trading and index option trading.

This is a security that tracks an index, a commodity or a basket of assets but trades like a stock on an exchange. It can be bought and sold throughout the trading day and has price fluctuations as do individual stocks. One major advantage is that these securities provide diversification.

SPY vs. SPX Option Credit Spreads::Pro's and Cons of ETF vs. Index | fesajina.web.fc2.com | The Monthly Income Machine

Many ETFs have options associated with them and the BCI team provides a weekly ETF Report for our Premium Members showing 15 — 25 eligible ETFs for covered call writing. Below is one of the eight pages found in each report:. Blue Collar Investor ETF Report Exchange-traded funds and covered call writing. This is an imaginary portfolio of securities representing a particular market or segment of a market.

Another example is the Russell Index which tracks small-cap stocks. Here are a few such indexes that have actively traded options:. Note that there is no trading taking place in the underlying index but rather has a calculated value that exists on paper only.

Options allow the trader to speculate on price direction. These are professionally managed, diversified portfolios that do not trade like stocks and do not have options associated with them. I include this in the definitions section so that there is clarity about ETFs and Indexes being different from the much more well-known mutual funds. The holder of an ETF option has the right but not the obligation to purchase our ETF shares whereas the holder of an index option does not.

All index options are cash-settled. Here is the formula:. When we sell options on stocks or ETFs, we are selling American Style options. This means that they are settled in shares of the underlying security and can be exercised at any time up to expiration usually 4 PM EST on the 3 rd Friday of the month. These are cash-settled, can be bought and sold prior to expiration but can only be exercised on expiration.

There are no concerns for early exercise with index options. ETF options are settled based on the closing price as of 4 PM EST on expiration Friday or the Thursday before if Friday is an exchange-recognized holiday. Index options can have an AM Settlement based on opening prices of the day of exercise or PM Settlement based on closing prices on the day of exercise. For European-style index option contracts the last trading day will be the business day generally a Thursday preceding the day on which the exercise settlement value is calculated generally the third Friday of the month unless that day is a holiday.

Trading volume can be light on many ETFs and therefore should be evaluated before entering a covered call position. The exchange-traded funds that appear in our Premium Member Reports all have adequate near-the-money open interest as of market close on Friday.

Most Blue Collar Investors trade American Style Options on stocks and ETFs. Understanding the difference between American and European Style Options as well as between ETFs and Index Options will only make us better investors as we fulfill one of our mission statements… Education is Power. We are now adding a 3rd perspective known as GMI developed by Dr.

Eric Wish who teaches a stock investment class to finance honors students at The University of Maryland. I like this Index a lot and will publish the type of signal it is alerting us to each week. Here is an overview of the 6 parameters included in this index:. In a rising market, traders have the confidence to let strong stocks climb, so they have a successive number of new highs. In a bear market, anxious traders take profits quickly and stocks tend to gyrate.

Any number above will be a bullish sign. At least new highs in a day in my 4, stock universe. In a bullish market we should at least have stocks hitting new highs.

Furthermore, when a market has more daily new lows than new highs we really should not be buying growth stocks with the expectation of making a profit. The odds are simply against us. Wishing Wealth Daily QQQQ Index Positive. Watches QQQ to track the tech stocks, and often trade it or its options. This index is positive when technical indicators suggest that future of skilled trades is in a rising trend.

A change in trend will occur in the daily indicator before the weekly indicator. In a strong market both the daily and weekly trends will be positive. I have found that when these growth mutual funds are rising, then I can expect to successfully buy growth stocks.

The Wishing Wealth General Market Index just counts the number forex strategy master review forex peace army these conditions that are positive and makes a general comment on buy and sell signals:.

Posted on July 26, by Alan Ellman in Exchange-Traded FundsInvestment BasicsOption Trading BasicsStock Option Strategies. To send us an email, contact us here. Subscribe to our e-mail newsletter or RSS feed to receive updates. Contact us by phone at Additionally you can also find us on any of the social networks below:.

Look for the report dated You can view them at The Blue Collar YouTube Channel. For your convenience, the link to the BCI YouTube Channel is: You can access it at: Alan, Can you tell me how long after an earnings report comes out should I then be able to look at selling a call option?

So maybe waiting until my morning is what I should do,- the US market closes at 9am my time so there are a few hours beforehand if this is alright with you? If a report meets expectations and offers no unexpected guidance there may be no unusual price how do i exercise call options on etrade etf options vs stock options which case the stock can be considered immediately after the report.

If a report disappoints may not want to use this security or positively surprises we view the price chart to see when consolidation begins price moving sideways. This can occur later in the day after the report comes out or the next day after the initial morning volatility subsides usually after 11AM ET.

Below is a price chart of AAPL showing the initial price volatility and the 2 possible entry points after the report has passed. Shares purchased in less than lot increments cannot be used for covered call writing but they certainly add value to our portfolios. What am I missing? When a company announces a dividend distribution, it is quoted in annualized format. Since most companies distribute the dividend on a quarterly basis as does AAPLwe must then divide by 4 to calculate the distribution in any particular quater.

I am a new Premium member and really excited about your program. I have read couple of your books and have a couple questions:. Is bill poulos forex income engine a certain day of the month that is best to enter new 30 day contracts?

Is it best to try to get in around the 30 day timeframe? My greatest success with covered call writing is with 1-month options…by far. The reason is that we are undertaking a short-term obligation and theta time value erosion of the option premiums is logarithmic, not linear. Therefore, the longer we wait into the contract the lower our returns will be and premium will substantially forex middle east after the first week of a 4-week contract.

When this occurs, we are offering our members the most up-to-date information for entering secondary positions in the same contract month. These securities may be appropriate for investors with a higher level of risk-tolerance looking to generate higher returns while undertaking greater risk.

Alan, so my understanding here is to wait until the consolidation starts, which I guess could happen from an hour to over a day after the ER. Most stock prices settle by early afternoon. However, if there is a conference call by the Board of Directors, price settlement may not occur until after that call which may be later in the day.

If you find you need more eligible candidates in the price range you are focusing in on, consider our ETf reports which will add another eligible candidates. The returns will be a bit lower but it may help to populate your portfolio and keep the premiums flowing in. I usually use marketwatch. What would you think of this now? The report also lists Top-performing ETFs with Weekly options as well as the implied volatility of all eligible candidates.

Mail will not be published Required. You can use these tags: Notify me of followup comments via e-mail. You can also subscribe without commenting. Optionally add an image JPEG only. Site Disclosure Statement Glossary Sitemap Timeline. Members Log In About Us Glossary for Covered Call Writing Free Resources including Ellman Calculator Ask Alan Training Videos Free Training Videos Events Calendar Facebook FAQ.

The Blue Collar Investor Learn how to invest by selling stock options. Covered Calls Beginners Corner — Cash-Secured Puts The Blue Hour The Blue Hour For Premium Members.

ETF Option Trading vs. Below is one of the eight pages found in each report: About Alan Ellman Alan Ellman loves options trading so much he has written four top selling books on the topic of selling covered calls, one about put-selling and a sixth book about long-term investing.

Alan is a national speaker for The Money Show, The Stock Traders Expo and the American Association of Individual Investors. He also writes financial columns for both US and International publications along with his own award-winning blog.

He is a retired dentist, a personal fitness trainer, successful real estate investor, but he is known mostly for his practical and successful stock option strategies. Connect With Us To send us an email, contact us here.

Additionally you can also find us on any of the social networks below: More questions to come soon too. Adrian, If a report meets expectations and offers no unexpected guidance there may be no unusual price volatility in which case the stock can be considered immediately after the report. Alan, Thanks for your reports…I can wait to get them each week. Hi Alan, I am a new Premium member and really excited about your program. I have read couple of your books and have a couple questions: Why does your stock screen list come out weekly if entering 30 day contracts?

Danny, My greatest success with covered call writing is with 1-month options…by far.

Thanks for your membership. What are leveraged ETFs?

Why I Trade ETF Options

Are they optionable as well? What are their pros and cons? Adrian, Most stock prices settle by early afternoon. For your convenience, here is the link to login to the premium site: Check out this link: Subscribe Here - Have the latest blog articles sent to your inbox. Subscribe to this articles Comments via RSS Feed. Learn how to take a Screenshot so you can add it to your comment.

Leave a Reply Click here to cancel reply. July 15, 8: Washington DC Chapter AAII- Summer Workshop. The New Stock Market- Algorithmic and High Speed Trading January 15, Options That Expire Weekly and Conventional Expiration Cycles September 26, Short Selling: Positives and Negatives January 30, The CBOEs Volatility Index VIX September 11, Penny Pilot Program October 29, MarioG Here is my status and my experiences after Expirat Roni Thanks Barry, I was trying to enter a covered c Barry B Hi Roni, WCN had a 3 for 2 stock split on June Alan Ellman Randal, Yes.

When a strike expires in-the-money Alan Ellman Luis, When I first started with covered call wr. Recommended Investing Links DR. Eric WIsh's Wishing Wealth Blog. Archives Archives Select Month June May April March February January December November October September August July June May April March February January December November October September August July June May April March February January December November October September August July June May April March February January December November October September August July June May April March February January December November October September August July June May April March February January December November October July June May March January December October September August June January December November September August July June May April March February January December November October September August July June May April March January December About BCI The Blue Collar Investor was NOT a brilliant idea of mine….

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