My List Of 40 Liquid ETFs Revealed (DIA, IWM, SPY, QQQ)

Andy Crowder: I recently came across an article from a prominent options trader that truly disappointed me. The gentleman brought up the question as to whether or not credit spreads were a viable options strategy. For some, credit spreads are not a viable strategy, but only because they prefer a different style of trading, not because the strategy is faulty.

Remember, not every strategy works for every trader. Traders must find what works best given the type of trader he or she wants to be and stick with it for the long haul.

So to say that credit spreads “aren’t a good strategy” is akin to saying that Phillips-Head screwdrivers aren’t good tools – when, in fact, credit spreads and screwdrivers work perfectly when they’re put to the task they’re designed for.

No one can deny that credit spreads offer a high probability of making a profit. Even the gentleman who bashed credit spreads agreed.

But, where he goes astray is the assumption he makes regarding the risk. He states that along the way to realizing a gain in a credit-spread trade, you have a lot of risk and stress involved. Obviously, he doesn’t clearly understand how credit spreads work and the fact that he mentions stress as a factor to stay away from credit spreads plainly discounts any opinion he has regarding trading. Why? Because trading is stressful. It is difficult. But it is also the most rewarding and mechanical way to build wealth, especially when implementing credit spreads as a part of an overall investment strategy.

He gives the following example:

The average credit spread trader will face 100% losses on a credit-spread trade several times a year while trying to make a modest 5% to 10% a month. What happens is that eventually all credit-spread traders meet their doomsday. Sooner or later, virtually all options traders who use only credit spreads wipe out their entire accounts.

Really? Seriously?

Tell that to all of the old floor traders on the CBOE that used various credit-spread strategies, EXCLUSIVELY.

In fact, tell that to some of the top options traders in the world who trade various forms of credit spreads, including vertical spreads, iron condors and the like. Trading careers are made selling options premium. They offer the only true statistical advantage, unlike directional strategies which are championed by this gentleman. Professional options traders know this; unfortunately, this gentleman subjects his readers to the exact opposite.

Remember, every trader has their own approach. Mine – I use short-term extremes in the market to sell credit spreads (which gives me some margin for error if the move continues to push in the same direction) and I also buy calls/puts to fade short-term extremes. I have been doing this for well over a decade now and will continue to do so until I am no longer capable of pushing a button to place an order. I hope you will join me on my lifelong journey of building wealth in the only way I know how – a logical, intellectual and strategic way.

My List of 40 Liquid ETFs

Many of you have requested that I publish my list of 40 ETFs that I follow on a daily basis for the Options Advantage portfolio. Well, per all of your requests I have decided to make my list available for weekly viewing in the Strike Price and daily viewing in my Options Advantage service.

A little background about the indicator.

One of the biggest mistakes I see new traders making is that they keep digging into the toolbox for a new widget every time they see something they like.

I can’t tell you how many traders I know who want to follow bull flags, bear flags, candlestick patterns, channel retracements, Fibonacci retracements – the list goes on and on. They will try and teach you about their long list of indicators to make themselves look impressive, but in reality most are horrible traders over the long term because they overwhelm themselves with a stream of the latest and greatest indicators only to move on to another indicator that happens to fit their current market perspective.

I keep it super-simple when I trade. I pick one tool and I use it for its specifically intended purpose. For me as an options trader, I’m looking to make steady, reliable gains without too much of a holding period.

So in order to make options trades I use a tool that helps me do a few things:

1) It alerts me that a profitable trade may be on the horizon – which gives me time to prepare.

2) It tells me when I should think about getting out.

3) It lets me adjust my time horizon to craft a trade that fits my needs.

As I said before, I keep it very simple. I use a few basic versions of ONE simple tool model to take advantage of sentiment and technical extremes on highly liquid ETFs.

So, with that being said, I would like to share with the most powerful technical indicator that I use in my proprietary model.

Options Advantage – Crowder Indicator: Most Liquid Stocks (Options)
As of the end of trading on 6/25/12
ETFs Symbol Reading Overbought/Oversold
Benchmark ETFs
Dow DIA 69.8 Neutral
Russell 2000 IWM 58.3 Neutral
Nasdaq 100 QQQ 59.8 Neutral
S&P 500 SPY 63.6 Neutral
Sector ETFs
Consumer Discretionary XLY 57.2 Neutral
Consumer Staples XLP 67.5 Neutral
Energy XLE 61.5 Neutral
Financials XLF 63.7 Neutral
Gold Miners GDX 56.6 Neutral
Homebuilders XHB 53.9 Neutral
Health Care XLV 74.0 Overbought
Industrials XLI 59.8 Neutral
Materials XLB 57.3 Neutral
Oil and Gas Expl. & Prod. XOP 54.1 Neutral
Technology XLK 61.3 Neutral
Real Estate IYR 64.4 Neutral
Retail XRT 50.0 Neutral
Utilities XLU 69.4 Neutral
Commodity ETFs
Agriculture DBA 36.6 Neutral
Gold GLD 73.8 Overbought
Natural Gas UNG 64.1 Neutral
Silver SLV 49.1 Neutral
U.S. Oil USO 48.8 Neutral
Volatility
S&P 500 VIX Futures VXX 41.7 Neutral
Dollar
US Dollar Index UUP 23.1 Overbought
Bonds
Ishares 20+ Treasury TLT 61.9 Neutral
International
Brazil EWZ 58.7 Neutral
Chinia FXI 72.3 Overbought
Emrging Markets EFA 67.5 Neutral
EAFE EEM 67.7 Neutral
Japan EWJ 67.6 Neutral
Leveraged ETFs
Direxion 3X Bear FAZ 33.0 Neutral
Energy Bear 3X Shares ERY 33.2 Neutral
Financial Bull 3X FAS 64.9 Neutral
Ultrashort QQQ QID 36.5 Neutral
Small Cap Bull 3X TNA 58.2 Neutral
Smal Cap Bear 3X TZA 38.9 Neutral
Ultra Long S&P 500 SSO 67.9 Neutral
Ultra Short S&P 500 SDS 30.5 Neutral
Ultra Short 20+ Treasury TBT 36.0 Neutral

Basically, my indicator allows me to gauge the probability of a short- to intermediate-term reversal. It does not tell me the exact entry or exit point, but it helps me to be aware that a reversal is on the horizon.

Knowing that a short-term top/bottom is near I am able to increase the probability of a potential trade. Conversely, knowing that a reversal is on the horizon I am able to lock in profits on a trade.

Related: Dow ETF (NYSEARCA:DIA), Russell 2000 ETF (NYSEARCA:IWM), Nasdaq 100 ETF (NASDAQ:QQQ), S&P 500 ETF (NYSEARCA:SPY).

Kindest,

Written By Andy Crowder For Wyatt Investment Research

Wyatt Investment Research is led by founder Ian Wyatt, who serves as Publisher and Chief Investment Strategist. Our team also includes a group of talented research analysts and editors who aim to uncover  great  investments and present those investment ideas to our growing  group of  loyal subscribers.

Ian Wyatt is an active investor, a well-regarded investment expert   and an Internet entrepreneur. He is the Chief Investment Strategist at   Wyatt Investment Research, and plays a leading role in each of the   company’s investment newsletters and trading services. As a   well-regarded market expert, Ian has written for Marketwatch, Zacks Investment Research, Seeking Alpha, Yahoo! Finance and The Burlington Free Press. He has been interviewed or quoted in articles in well-known publications including AOL Finance Blogging Stocks, Kiplinger’s Personal Finance Magazine, Barron   Magazine, Barrons.com, Forbes.com, The Dick Davis Digest, The Dick  Davis  Income Digest, The Wall Street Transcript, TheStockAdvisors.com,  Money  Show Digest, The New Jersey Star Ledger, The Wisconsin State  Journal and The Seattle Times.

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