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There is an interesting article in today/Sunday's NY Times about EFTs...
"exchange-traded funds". If you are interested, the article is at
http://www.nytimes.com/library/financial/sunday/110799invest-mutual.html
(there is a no-cost registration, but otherwise the NYT is free of charge).
Two of the more popular EFTs are SPDRs and DIAmonds. As explained fully in
the article, these instruments trade like an equity, can be bought on margin
and sold short. They are very liquid (SPY trades around 8M shares daily)
and are a great proxy on the underlying, i.e., SPY is 10% of the S&P500
index, and DIA is 1% of the DOW 30 industrials. According to the article,
the AMEX (where these are traded) is about to see a mushrooming of a much
wider variety of EFTs after the first of the new year. The gist of the
article is that these will provide serious competition to the mutual fund
industry due to their enhanced flexibility (open/close trades intra-day,
real-time quotes, etc.), as well as have different tax and commission
considerations than mutual funds (not always more favorable).
Can anyone explain why options are not traded on these insruments? Every
other equity trading these kinds of volumes has a significant market in
options, but not the SPDRs. I've heard it said that the best reason is that
it would take market share away from the SPX options, which also trade on
the AMEX. With all the motion toward electronic trading, it's hard to
imagine there is not a more compelling reason.
Anyone able to ante up with an answer?
Dick Crotinger
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