If you want to sell some covered calls or explore more complicated multi-leg options strategies, doing it on an ETF tends to be more diversified and capital-efficient than trading single stocks.
However, not all ETFs are created equal when it comes to options trading. While most ETFs will have an options chain, the depth and liquidity can vary significantly.
The best ETFs for options trading not only have high options volume but also offer numerous strikes and expiry dates. This variety is crucial for traders because it allows for more precise strategy execution, better pricing, and the ability to adjust positions as market conditions change.
Here are the five best ETFs for options trading as of July 3rd, 2024, ranked by ascending options volume based on data from OptionsCharts.io.
iShares Silver Trust (NYSE:)
Option volume as of July 3rd, 2024: 286,438.
The bull run this year has significantly impacted silver ETFs, with the iShares Silver Trust (SLV) absorbing the bulk of investor inflows and growing its assets under management (AUM) to over $12.7 billion, making it the largest silver ETF.
Selling options on SLV allows traders to harness the volatility of silver spot prices for income generation or to hedge their positions. This ETF has a 0.5% expense ratio and currently holds 13,586 tonnes of silver in trust, tracking the LBMA Silver Price Index.
iShares 20+ Year Treasury Bond (NASDAQ:) ETF
Option volume as of July 3rd, 2024: 291,964
TLT caused significant losses for long traders in 2022, but this year, investors are once again piling in to speculate on a potential Federal Reserve rate cut. With a 16.4-year duration, this ETF has potentially high upside should rates fall.
In the meantime, the high volatility of TLT lends itself well to options selling strategies. In fact, iShares offers an ETF specifically for this purpose—the iShares 20+ Year Treasury Bond BuyWrite Strategy ETF (TLTW), which sells covered calls and boasts a 16.52% 12-month trailing yield.
iShares ETF
Option volume as of July 3rd, 2024: 636,815
IWM is a popular ETF with $58 billion in AUM, tracking one of the most watched small-cap benchmarks for a 0.19% expense ratio. Traded on the NYSE Arca, it’s one of the most liquid ETFs on the market with a 0.01% 30-day bid-ask spread.
As with SLV and TLT, the high volatility of IWM makes it suitable as an underlying asset for options selling strategies. Covered calls are a popular choice, but cash-secured puts are also an option, providing flexibility for different trading approaches.
Invesco QQQ Trust Series 1
Option volume as of July 3rd, 2024: 2,408,797
At this point, QQQ, with its $286 billion in AUM, is practically synonymous with the Nasdaq-100 index. Personally, I check this ETF to see what the is up to rather than looking up the NDX itself. It’s also fairly affordable with a 0.2% expense ratio.
For “Magnificent Seven” and U.S. mega-cap tech exposure, few ETFs rival QQQ. Like IWM, it is fairly volatile, so the options premiums are juicy, making it an excellent choice for options selling strategies like covered calls or cash-secured puts
SPDR S&P 500 ETF Trust
Option volume as of July 3rd, 2024: 4,537,477
The SPDR S&P 500 ETF Trust (SPY (NYSE:)) is not only the oldest U.S.-listed ETF, having launched in January 1993, but it is also the largest, with $550 billion in AUM. Part of SPY’s dominance can be attributed to the popularity of its underlying index, the S&P 500, but it isn’t the only S&P 500 ETF available.
What really sets SPY apart is its unparalleled liquidity. When it comes to SPY options, there are significantly more strikes and expiry dates available, as well as higher open interest on contracts, making it the go-to choice for beginner and advanced options traders alike.
This content was originally published by our partners at ETF Central.
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