Comparing Stocks, ETFs, Indexes, and Stock Index Futures
The hard part is learning the strategies, but the great thing is that once you have mastered them, you can apply them to other underlying instruments. For example, if you learn how to trade an iron condor on stocks, you can use that strategy to trade options on an ETF, index, and/or stock index futures. Being able to trade a number of underlying instruments should open up possibilities for you to trade in many market environments. This chapter provides a comparison of representative underlying instruments. The chapter will set the stage for Chapter 24, on ETF options; Chapter 25, on stock index options; and Chapter 26, on stock index futures options.
The principles that have been demonstrated for options on a stock can be applied to options on an ETF, index, and stock index futures. This is good news because all the option strategies that you have learned in previous chapters can be applied to these other instruments. For example, similar to an option on a stock, an ETF, index, and stock index futures option buyer has unlimited reward potential and limited risk, and the seller has limited reward potential equal to the option premium collected and unlimited risk. An ETF, index, or stock index futures call option provides the purchaser the right, but not the obligation, to buy (or settle) at the strike price. An ETF, index, or stock index futures put option provides the purchaser the right, but not the ...