Options and Strategies for Shorting ETFs
Thank you to all of you who sent me additional suggestions on how to work with the times that ETFs are not available to be borrowed for shorting. Yesterday I mentioned three solutions. They are:
–Use the 1x inverse.
–If there is no 1x inverse trade half the dollar amount in a 2x inverse (FXI and FXP is a good example of this).
–Open multiple brokerage accounts for your shorts and use these other accounts for the times your primary broker does not have the ETF or stock available (more on this below).
Here is another idea mentioned in a number of e-mails that were sent by subscribers yesterday.
A number of subscribers suggested using options. The strategies ranged from long puts, to placing on spreads, to putting on a synthetic position (buy a put and sell a call). Some of the accompanying analysis that was included in the suggestions was in-depth and excellent. Thank you to everyone for sharing the ideas with us.
The one caveat I would mention is the bid-ask spread on the IYT options. As one long time friend wrote me “the spread in this case is completely ridiculous”.
If you are going to use options be very careful as to how wide the spreads are as you can easily be 10-20% or more in the hole from the bid and ask depending on which strike price you use. But in the more liquid ETFs this is less of a concern and as the ETFs continue to rapidly grow, more and more options are seeing more liquidity and tighter spreads.
One final note to this. Two traders told me they almost never have problems with borrowing ETFs and stock from their brokers. One has an account at Interactive Brokers; the other at Think or Swim. We as a company are broker neutral, but itâ€™s good to hear that these two traders are having good success at these firms. You may want to look into them for yourself, especially if you decide to add a secondary firm as back up to your primary firm.
Again, thank you to everyone who was kind enough to take the time to share this information with us.
Special Note: Iâ€™m doing a 45-minute online presentation today Wednesday at 4:30 ET on the ETF Trading Seminar Iâ€™m conducting on Saturday June 13. The seminar will focus on TPS, a strategy I introduced in our new book High Probability ETF Trading, and itâ€™s the strategy I use that has provided the Model Portfolio in my Daily Battle Plan with 17 out of 19 winning ETF trades so far this year.
If youâ€™d like to attend this free presentation, please call 1-888-484-8220 ext. 1 or click here to register. The cost of the seminar is $4995 and will be conducted online Saturday June 13 from 10-4 pm ET. We expect 75-100 traders to attend and it should be quite helpful to your ETF trading
If you’d like to attend this free presentation please call 1-888-484-8220 ext. 1 or click here to register. The cost of the seminar is $4995 and will be conducted online Saturday June 13 from 10-4 pm ET. We expect 75-100 traders to attend and it should be quite helpful to your ETF trading.
Larry Connors is CEO and Founder of TradingMarkets.com and Connors Research.