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Options Jive

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Why Trade ETF's

Options Jive

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Individual equities generally trade with higher implied volatility and IV Rank levels than ETFs, which means a higher potential credit when selling options. Since this is priced in does it matter if a smaller trader chooses to trade individual equities or ETFs?

A study was conducted from 2005 to present in IWM (Russell 2000 ETF) , SPY (S&P 500 ETF), QQQ (Nasdaq-100 ETF), and DIA (Dow Jones ETF) to individual stocks in the S&P 100. The study examined how often realized moves exceeded the expected moves. The study found that individual stocks tend to exceed the expected move more often than ETFs.

A table comparing large outlier moves in ETFs to individual stocks was displayed. The table included 2-3 Standard Deviation (SD) moves, more than 3 standard deviation moves and the largest SD move recorded in the ETFs and individual stocks. The table showed that individual stocks tend to have larger outlier moves than ETFs.

Watch this segment of “Options Jive” with Tom Sosnoff and Tony Battista for some guidance on whether individual equities or ETFs are better suited for your account size and risk tolerance.

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