10PercentPerMonth.com - ETFs vs. Indexes

Advantages of ETFs (Exchange Traded Funds) over Indexes

Narrower bid/ask spreads and penny pricing allows for quicker fills and a more accurate valuation. Quicker fills are very important when a position goes against us and we have to adjust. The longer it takes for a fill may result in larger losses. The narrow spreads also provide much more liquidity allowing larger portfolios to be used.
Using our strategy and system, ETFs have a slightly greater profit potential with the same probability of success.
The difference in strikes prices are as low as $1.00, reducing the minimum investment requirement to only about $100 per contract. (We may use strikes $2.00 apart making the investment requirement about $200 per contract)
Settlement occurs at market close on expiration Friday instead of market open. A gap up or down that morning could turn a winning index position into a loss without the ability to adjust. With ETFs, the position could be adjusted or closed out during that last trading day to avoid losses.

Advantage of Indexes over ETFs (Exchange Traded Funds)

The index options that we trade in are European style -- no early assignment possible.
Since indexes are simply averages of selected stocks, there is no underlying asset. Indexes use a "cash settlement" so if the index settles at a level in between our strikes, the difference is made up in cash. With ETFs, writers of any In The Money short positions will be required to purchase 100 shares for each contract they sold.
Index trading qualifies for the 60/40 tax rule. 60% of capital gains are taxed as long-term and 40% are taxed at short-term, regardless of how long the positions are held.
Using the same investment amount, commissions may be less compared to ETFs. A $10,000 investment would buy/sell about 10 contracts for indexes ($10 strike difference) while that same amount would require 100 contracts for ETFs.

Side by Side Comparison

	ETF	Index
Examples	SPY, IWM, QQQQ, DIA	SPX, RUT, NASDAQ, VIX
Avg. Bid/Ask Spread	.02 to .06	.15 to .30
Penny Pricing?	Yes	No
Avg. Monthly Return w/ 80%-90% Success Rate	11% to 17%	10% to 12%
Tax Advantages?	No	Yes. 60/40 Rule
Settlement Time	Based on market Close on Expiration Friday	Based on market Open on Expiration Friday
Approximate Cash Needed Per Our Iron Condor Position	$200	$1000
Possibility of Early Assignment?	Yes	No
Autotraded by 10%?	Yes	No