How to Find the Best ETF Strategy for You

May 15th at 6:00am by Tom Lydon

When you’re investing in exchange traded funds (ETFs) or anything else, it’s wise to step back and consider what kind of trader you are. And it’s also wise to make sure that the strategy you’re using is best for you - no one else.

Some things to consider when choosing investments include risk appetite, the stage on the life cycle one is in, the sources of investment income has and the knowledge that an investor has about investment tools.  Additionally, strategy is linked to the type of trader one is, whether it be an analytical trader, a visual trader, an auditory trader, a synthetic trader, or a kinesthetic trader,  states Brett Steenbarger of Trader Feed. How do you acquire and process the information you receive?

There is no one plain vanilla options strategy that is suitable for all investors.  Scott Kramer of Optionetics outlines the following strategies – his article will give you an idea of the ones most commonly available, who they’re more suitable for, a full definition and explanation, as well as the risks involved with each, if you choose to use options:

  • Long Call/Put Spread: This strategy works well in a strong trending market and is easy to comprehend for new traders
  • Collars: This is good for those that want to trade a stock conservatively and is good for long-term investors
  • Short Call/Put Spreads: This strategy works when the markets move in the correct direction, sits still or even goes a little against you
  • Long time spreads: Used for either stable markets or directional trades
  • Butterflies and Broken Winged Butterflies: Ideal strategies for novice traders in that they offer a high risk-reward ratio, low cost of entry, low maintenance, and are easy to understand
  • Long Straddles/Strangles: This is ideal for low range stock’s option volatility where an increase in movement is likely to occur, such as earnings are released or record high prices.

Regardless of what strategy you decide to implement, make sure it suits your risk appetite and overall investment goals and objectives.  We recommend that you stick to your strategy.

Kevin Grewal contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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