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What are some good (largest popular) instruments/ETFs to use when buying options on the S&P500 and DJIA?

By good I mean have very good liquidity, even when buying/selling further from the money, and hence ideally smaller spreads.

I don't know what is available for DJIA and only know of one, SPY, for S&P500. I haven't looked into this whole subject at all, so all answers/comments are appreciated. Thanks.

  • I've clarified "largest" to mean "popular" so it won't be mistook again for "biggest single contract size." – Chris W. Rea Dec 11 '11 at 14:31
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Well, the largest, in terms of both volume and unfortunately, contact size is the options on the S&P futures index. It's based on one contract which is $250 times the current S&P index, or just over $300K current value. This does not make for too cheap an option cost, but it's definitely the largest as you requested.

For the average Joe, or Ray, in this case, the most popular ETFs are SPY and DIA for the S&P and Dow Jones, respectively. These are reasonably sized so their options are within range of your goal. See the SPY options at Yahoo. Then flip over to the DIA options.

(SPY reflects 1/10 the S&P so an option contract, on 100 SPY shares is effectively on 10 times the S&P index or 1/25 the futures option pricing.)

  • Thanks Joe ... my portfolio probably wouldn't allow for that though. I'm just wondering what the main ETFs are to sell options against the DJIA and S&P500. I've never done it, so not sure which ones are available and have good liquidity. – Ray K Dec 11 '11 at 4:01
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    SPY and DIA are the highest vol ETFs for S&P and Dow. – JoeTaxpayer Dec 11 '11 at 4:52
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    Yes, understood. The S&P futures and their options are in fact where the volume is. Volume on SPY option depend on month and strike, some particular ones trade pretty thin. – JoeTaxpayer Dec 11 '11 at 14:57

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