ETF's Gone Wild

While doing some reading this weekend, I realized that I had no idea that a major ETF existed for tracking Consumer Staples. I then noticed that this ETF also had options trading. I guess everyone can call me "slow", but it seems that new ETFs are coming on board all the time and it is very difficult to keep track of it all.

I have extensively used SPY, QQQQ, QLD, and QID to hedge positions over the years (mostly SPY than anything else). I have also held country ETFs (like EWA) to play the international markets when I either wanted a hedge or wanted to play a general theme (such as the power of emerging markets or the commodities bull run), but I have not really used sector-based ETFs because of two reasons.

The first reason was because I confidently believed that I can "pick" stocks within a sector and get better performance than the sector index (that may, admittedly, sound pretty arrogant). The second reason is that I wanted to use sector indexes to hedge long positions for certain stocks within the sector but the sector ETFs didn't offer options.

Well the second reason has now been completely addressed in many heavily traded sector ETFs and this opens up a whole new world of options trading for me.

Not all ETFs are created equal and I caution everyone to fully understand what the ETF invests its money in. Liquidity is also very important, and unless there is a compelling reason to invest in a low volume ETF, I only focus on ETFs that have an average daily volume of more than 500K shares traded.

Some of the ETFs worth considering that I plan to use in the future are listed below. There are hundreds more than this (so this list doesn't try to be all inclusive) and I didn't focus on any of the international ETFs plays.

General Indexes

• SPY (tracks the S&P 500 and trades options)
• QQQQ (tracks the Nasdaq 100 and has options)
• IWM (tracks the Russell 2000 index and has options)
• QLD (attempts to track twice the Nasdaq 100 index and now has options)
• QID (attempts to track the inverse or short the Nasdaq 100 index and now has options)
• SDS (attempts to track the inverse or short the S&P 500 index and now has options)
• DIA (attempts to track the DJIA and has options)
  

Sector Plays

Financials

• XLF (tracks with the financials and has options)
• UYG (attempts to return twice the financials)
• IAI (attempts to track with the Investment Bankers and Brokers and has options

Homebuilders

• ITB (attempts to track with the home construction players)
• XHB (attempts to track the S&P Homebuilders index and has options)

Energy

• USO (attempts to track futures related oil prices and has options)
• XLE (tracks with oil and gas stocks and has options)
• PBW (attempts to track with clean energy stocks and has options)

Retail

• RTH (attempts to track stocks of 20 companies in the retail sector and has options)
• XRT (attempts to track the S&P Retail index and has options)

Materials

• XLB (tracks the S&P Materials sector and has options)

Technology/Semiconductors

• SMH (tracks some of the largest semi stocks and has options)
• XLK (tracks the technology sector including Internet and has options)

Consumer Staples

• XLP (attempts to track major consumer staples companies stock and has options)