Index and ETF options are one of the weapons an options trader has in capturing broad exposure to certain situations whether it’s the broad S&P500 index or the financial sector. In this series, I’ll explain some of the more common index and ETF option contracts options traders have access to and wield rather frequently. As always, if there’s an index or ETF you’re not sure about and would want a better explanation, feel free to drop me an e-mail or a comment and I’ll be sure to add it to the running list.
Today’s index / ETF is the Powershares QQQ (Symbol: QQQQ), the most actively traded index / ETF in the world according to Powershares.
What is the QQQQ: The QQQQ attempts to track the performance of the 100 largest non-financial companies on the NASDAQ. Top holdings in the QQQQ include Apple, Microsoft, Google, Research in Motion, and eBay to name a few.
Why use the QQQQ: The QQQQ helps diversify a portfolio by covering a large number of companies without having to purchase contracts (or shares) for each individual company (as is common with most index / ETFs). Similar to the Forex (currency) market, the liquidity for the QQQQ is almost a non-issue with open interest around the 1 million mark. The QQQQ can be used as a hedge to the NASDAQ due to the large number of companies included in the ETF.
QQQQ Options Structure: The QQQQ trades just as any other equity trades on the options market. The QQQQ trades in $1 strike increments with options trading in penny increments. This offers great flexibility and inherently lower costs since the bid / ask spread is not as large as most options contracts. Most options contracts trade with a $0.05 to $0.10 bid /ask spread and as such can cut into profits.
If you want broad exposure to the large companies listed on the NASDAQ, the QQQQ may be for you. In the past year, the QQQQ has increased over 25% in price as compared to about 20% for the NASDAQ index so the tracking attempts by the ETF are almost on the mark.
Index and ETF Weapons for Options Traders – Powershares QQQQ
The first in a series of index and ETF explanations for the most widely used by options traders. The first in the series starts with the Powershares QQQ (Symbol:QQQQ)
Trackback by www.feedthebull.com — Wednesday, October 31, 2007 @ 7:46 am
Great information, i defintiley was just schooled on options trading.
Comment by Gorilla Trades — Wednesday, October 31, 2007 @ 12:10 pm
While I am knowledgable about finance and accounting, I have never traded options before. I have heard that most options end up expiring and people lose money. Do you think this is an accurate POV? Where did you ‘learn’ about options trading, and where might I go to look up some info? Thanks
Comment by lexington louis — Wednesday, October 31, 2007 @ 9:27 pm
[...] Powershares QQQ – Index and ETFs for Options [...]
Pingback by SPDR Trust (SPY) - Index and ETFs for Options | My Adventures into The Street — Thursday, November 1, 2007 @ 12:08 am
You just described the two downfalls of options – expiration and premium. A couple of website references include cboe.com and 888options.com. 888options will also send you free software to help with learning options.
I started with a book called Getting Started in Options by Michael C. Thomsett. After reading up, I went ahead and paper traded a bit to get the feel for it. Now I almost solely trade in options partly due to the fact that I don’t have a lot of money in the stock market so options can give me some leverage. So far I’ve done alright hah!
Check out those two websites first. They have so much information it’ll take you a few days to get through it all.
Comment by Jorge — Thursday, November 1, 2007 @ 3:57 am
[...] H. presents Powershares QQQ (Symbol: QQQQ) – Index and ETF posted at My Adventures into The Street, saying, “The first in a series of index and ETF [...]
Pingback by 61st Festival of Stocks, November 5th 2007 - Stock Trading To Go — Monday, November 5, 2007 @ 9:14 am
[...] articles: “Can You Get Rich With These 7 Stock Market Oddball Indicators?“, “Powershares QQQ (Symbol: QQQQ) – Index and ETF” and my article, “Interview with Vitaliy Katsenelson, author of Active Value [...]
Pingback by Festival of Stocks at StockTradingToGo.com - Fat Pitch Financials — Monday, November 5, 2007 @ 8:00 pm
[...] Posted Comments Festival of Stocks at StockTradingToGo.com – Fat Pitch Financials on Powershares QQQ – Index and ETFs for Options61st Festival of Stocks, November 5th 2007 – Stock Trading To Go on Powershares QQQ – Index and ETFs [...]
Pingback by Index and ETF Series Recap | My Adventures into The Street — Tuesday, November 6, 2007 @ 5:29 am
[...] H. presents Powershares QQQ (Symbol: QQQQ) – Index and ETF posted at My Adventures into The Street, saying, “The first in a series of index and ETFs [...]
Pingback by Carnival of 20 Something Finances - Millionster.com - Money, Life, and Success — Thursday, November 15, 2007 @ 9:09 pm
[...] Powershares QQQ (QQQQ) [...]
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