Trading ETF Options

One of the more popular ways to day trade is by trading ETF options. Exchange Traded Funds in and of themselves are popular investments on their own simply by nature of their efficiency and low expense ratios. Their high liquidity, volume, and broad exposure to equity assets make them ideal for making money short term using derivative contracts.

High Liquidity and Broad Exposure Makes ETFs a Good Income Strategies Asset

Exchange traded funds which are based on broad indexes such as the Dow Jones Industrial Average or the S&P 500 generate a great deal of transaction volume on a daily basis. As a result on any given day investors can count on the market for these assets being relatively stable, deep, and liquid should the need arise to quickly exit from a position. Assets with these characteristics tend to have narrow spreads and low broker commissions – and hence are low-cost securities to use for quick hits into and out of the market to try and make money / income on short term strategies.

Ways to Make Money Trading ETF Options

The major index funds are the most popular and liquid in the market. Investors tend to like to use the SPY and DIA securities to grind out income on daily movements in those assets. Again, they are the deepest, most liquid markets of that type of security around. Typically this is done by either purchasing or selling contracts early in the day and reversing / cashing in or holding those positions depending on the whims of the individual investor. Making these kinds of trades typically requires a considerable amount of capital however – as it requires them to open a margin trading account with a broker. As we mentioned earlier, investing this way is somewhat capital intensive and requires at a minimum $10,000 to start ($25K would be better / more effective) and for the more complicated / higher risk trades most brokers would require something around $100K in cash equity margin to get approval for those kinds of “sell to open” trades (more info).

Low Capital Alternatives to Standard Day Trading

People with less money to start out may not have the ability to make money with standard contracts for ETF options, however that should not be a complete deterrent – as alternative low capital methods exist. One of the more popular low capital methods to make money trading ETF options such as the SPY and DIA is by buying binary options on them instead of the standard ones. These straight dollar (or Euro / GBP) investments typically can be found and made in increments of as small as $25 or perhaps $30 depending on where you look (more on top brokers). The growing popularity of this type of asset can not be denied as the industry is among the few still growing in these uncertain times. Low capital investors have few alternatives to get short in the market (which is where many of us want to be these days – at least on a short term or as needed basis) and using a binary contract gets you there without the need of gathering $100,000 of capital first.

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