Exchange-traded funds are index funds or trusts that are traded intraday on an exchange. They allow an investor to buy or sell shares of an entire stock portfolio in a single security.
Options on ETFs operate the same as individual equity options. They offer the efficiency of ETFs with the flexibility of options and allow investors to:
ETF options are standardized put and call options on underlying ETFs. Minimum trade size is one option contract, with each contract representing 100 shares of the underlying ETF.
Equity options, which are the most common type of equity derivative, give an investor the right but not the obligation to buy or sell a call or put at a set strike price prior to the contract’s expiry date.
Index options make it possible for investors to seek either profit or protection from price movements in a market as a whole or in broad segments of a particular market.
FLEX and LEAPS options offer investors increased flexibility in terms of contract customization (such as expiration date, exercise style, and exercise price) and time frame (with expirations of up to three years out).