Why are sector ETFs interesting for You

ETF ETFs exchange traded fundsExchange-traded funds or ETFs are one of the most important and valuable products created for individual investors in recent years. ETFs offer many benefits and, if used wisely, are an excellent vehicle to achieve an investor’s investment goals.

What is an ETF? An Exchange-traded fund is a basket of securities that you can buy or sell through a brokerage firm on a stock exchange. ETFs are offered on virtually every conceivable asset class from traditional investments to so-called alternative assets like commodities or currencies. In addition, innovative ETF structures allow investors to short markets, to gain leverage, and to avoid short-term capital gains taxes.

Sector ETFs dissect the market according to their economy activity. These products are popular with investors looking for targeted exposure in addition to their core equity exposure, as well as those looking to take advantage of long-term trends in the economy.

 

Access to a Sector or Market

If you want to gain access to an industry, one stock purchase is probably not the best way to go. Buying multiple stocks is a more sound strategy. However, which stocks do you buy? How many? Should you just buy an index basket? Or you could by a pre-packaged asset that gives you instant access to a sector, say like an industry ETF. Advantage – ETF. Instead of buying we like to sell sector ETF’s. It gives a higher probability of profit.

 

ETFs correlations

Furthermore, investors can benefit from the low correlations between each sector, which allows for easier risk management. From an active management perspective, they can also implement sector rotation strategies.

Today’s Options Jive looks at the sector ETFs. The list can be

seen below:

  • Energy (XLE)
  • Financials (XLF)
  • Health Care (XLV)
  • Utilities (XLU)
  • Industrials (XLI)
  • Technology (XLK)
  • Consumer Discertionary (XLY)
  • Consumer Staples (XLP)
  • Materials (XLB)
  • Retail (XRT)

The Retail ETF has the highest implied volatility, whereas the lowest is Consumer Staples. A correlation matrix is then shown for traders to examine the relationships between the ETFs.

Lastly, a table is shown demonstrating the high historical probabilities of success for those looking to place 1 standard deviation strangles.

For more information, please watch the show. tastytrade.com

 

Takeaways

An ETF is an excellent instrument to sell options premium. You receive higher option premium than the most stocks and it  has a higher probability of profit. ETFs moves more than stocks. You can receive a excellent credit when you sell options. Or if you have an opinion about a sector you can buy an ETF instead of several stocks.

 

 

 

 

 

 

 

 

If you like this post see also http://selloptionpremium.com/blog/start-trading-etfs/

 

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