ETF Options Gaining in Popularity

With the historically rocky stock market months of September and October nearing, investors will likely be looking into exchange-traded-fund options to protect investments, Investor's Business Daily reports. As ETFs continue to gain in popularity, more options have been written on the funds.

ETF-options trading increased to 17% of the total options market in the first half of 2006, up from 3% in 2000, according to Options Clearing Corp. The top five ETF options comprised nearly 15% of the total.

Because ETFs mimic indexes, it makes it easier for investors to hedge against market volatility. "There are times of the year when volatility is much more likely, particularly earnings season, around stocks," said Greg Jensen, executive vice president at Spread Trade Systems.

ETFs also offer investors a more diversified portfolio with less capital and a chance to generate income. "We've seen a shift from trading options on indexes to trading options on ETFs," said David Kalt, chief executive of online brokerage Options Xpress. ETF options are more geared towards retail investors and index options are more targeted to institutional investors, he said.

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.