Questions On Exchange Traded Funds

903 Words4 Pages
Trevir Nath
ETF Options
Exchange Traded Funds (ETFs), similar in many ways to mutual funds, are investment funds traded on stock exchanges. ETFs track the performance of commodities, bonds, and large indices such as the S&P 500 (SPX), NASDAQ (IXIC), Dow Jones (DJI), etc. Much like stocks, ETFs experience price changes throughout the trading day in which they are bought and sold. Fundamentally, the prices of assets traded remain close to, but not always equal, to its net asset value. Largely attractive due to lower costs, flexibility, minimal capital gains taxes, and leverage for market exposure, ETFs have become popular amongst investors. With a recent influx of ETF investments, the risks associated can have severe ramifications to the individual investor and financial markets. To mitigate these risks, ETFs can have options written against them as a hedging strategy for speculative investors.
ETF Overview Following the 2008 Financial Crisis, financial institutions sought alternative investments offering structure, transparency and liquid products. At face value, ETFs provide investors with a vehicle to meet their demands. Exchange traded funds are classified as open ended funds allowing investors to gain diversified exposure to financial assets ranging from emerging markets to large indexes. ETF shares are created by financial institutions which replicate the market movement of an underlying index. For example, SPDR funds are a group of ETFs tracking the movement of
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