TY - JOUR T1 - Options on ETFs and Indexes JF - ETFs and Indexing SP - 74 LP - 80 VL - 2006 IS - 1 AU - Ronald M. Egalka AU - Matthew T. Moran Y1 - 2006/09/21 UR - http://guides.pm-research.com/content/2006/1/74.abstract N2 - Individual and institutional investors have used cash-settled index options for portfolio management and yield enhancement purposes since 1983. Some of the most successful new financial products of the past decade have been options on ETFs. Average daily volume for ETF options listed at the Chicago Board Options Exchange grew 485% from 2001 to the first half of 2006. Investors use index and ETF options for a variety of strategies, including: (1) long index call options to gain market exposure, (2) protective put index options hedge systematic equity market risk by limiting downside exposure while retaining upside potential, (3) buy-write (also known as “covered call”) strategies to help gain income and provide a limited cushion for downside losses, (4) low-cost protective collar strategies to provide downside protection through the use of index put options, with minimized costs through the sale of index call options, in effect trading away some upside potential, and (5) many other options strategies, including straddles, strangles, bull spreads, bear spreads, butterflys, and box spreads. The BXM Index and other recently introduced benchmarks on buy-write strategies have helped lead to more than $20 billion in new options-based investment products designed to produce enhanced yield and lower portfolio volatility. ER -