5 Commodity ETFs With Active Options

Options are, and please pardon the obvious pun, an invaluable option when it comes to crafting trading and investment strategies. At the simplest level, options offer a relatively simple and straightforward form of leverage for investors who want more to pursue more aggressive strategies. Options can also be very useful in hedging risk, creating income from securities that do not otherwise pay dividends, and executing strategies that exploit mispricings tied to volatility, timing and other factors.

While there are a host of stocks with active (liquid) options contracts, and likewise many liquid index options, that’s not always the case with options on ETFs. It’s also very important to note that while index options are European-style, ETF options are American-style options. All of that said, here are some of the commodity-related ETFs with the most active options [for more commodity ETF news and analysis subscribe to our free newsletter].

  1. SPDR Gold Trust (GLD): It is no surprise that the SPDR Gold Trust would feature prominently in a discussion of actively-traded ETFs. Not only is the SPDR Gold Trust a large and liquid ETF (with over $73 billion in net assets and a daily average volume of nearly 11.6 million shares), it also has very active options. Although volumes do of course vary with the expiration and strike price, many GLD option contracts see daily volume in the hundreds to thousands of contracts. That’s not necessarily significant relative to the volume of options for the granddaddy of ETFs, the SPDR S&P 500 ETF (SPY), but it’s large within the realm of commodity ETFs and it’s liquid enough for the purposes of most investors.
  2. Market Vectors Gold Miners (GDX): While investors in gold have many more alternatives (and more liquid, easy-to-own alternatives) than just a few years ago, the number of easily-tradeable gold investments is still relatively limited. Consequently, it’s not too surprising that the Market Vectors Gold Miners ETF is another of those commodity-related ETFs with meaningful options volume. This ETF has a much lower sum of net assets than the SPDR Gold Trust but the trading volume is larger (over 14 million per day). Volume on GDX options is not quite as strong as with GLD, but there are many contracts with consistent daily volumes measured in the hundreds and thousands of contracts [see also How to Play $10,000 Gold].
  3. SPDR Energy Sector (XLE): Options on the SPDR Energy Sector ETF can trade in volumes measuring in the hundreds or thousands, and investors can also use the liquid options of ETF components like Exxon Mobil (XOM) or Chevron (CVX) for various hedging or pair trading strategies. In many respects, this fund is similar to the Market Vectors Gold Miners, with net asset value of roughly $7.9 billion and daily volume above 9 million.
  4. U.S. Natural Gas Fund ETF (UNG): Similar to the SPDR Gold Trust, the U.S. Natural Gas Fund allows investors to replicate an exposure to natural gas futures (minus trading costs and fund expenses) with considerably more liquidity. While investors could also choose to invest in options on natural gas futures, the U.S. Natural Gas Fund has numerous options contracts with daily volume measured in the hundreds or thousands [see also 25 Ways To Invest In Natural Gas].
  5. iShares Silver Trust (SLV): Similar in many respects to the Gold Trust and Natural Gas fund, the iShares Silver Trust is a large ($11 billion in NAV) and liquid (15 million daily volume) with numerous liquid options. Like the other names on this list, the most active option contracts on the iShares Silver Trust see daily activity measured in the hundreds or thousands of contracts, which compares quite favorably to most ETFs or even highly-liquid individual stocks.

Liquidity is Still Not Necessarily Common

Investors should not assume that all commodity-related ETFs will have similar options liquidity. While the Market Vectors Junior Gold Miners (GDXJ) ETF does have similar volume to many of these other names (measured in the tens to thousands of contracts per day), many other commodity ETFs like the iPath Crude Oil Index ETN (OIL), U.S. Brent Oil (BNO), and iPath Copper Sub-Index (JJC) have options volume measured in the single-digits to tens of contracts per day. As is always the case, then, be sure to investigate the daily and weekly options liquidity before looking to execute strategies with commodity ETFs.

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Disclosure: No positions at time of writing.

About Stephen D. Simpson

Stephen D. Simpson, CFA is a former Wall St. sell-side analyst who currently spends most of his time writing about investments, business, and the economy. He has worked as an equity analyst for both sell-side and buy-side investment companies in both equities and fixed income, and been a freelance writer for ten years. Stephen's consulting work has focused primarily upon the healthcare sector, while he has also written extensively for publication on topics pertaining to investments, security analysis, and healthcare. Simpson operates the Kratisto Investing blog.
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9 Responses to “5 Commodity ETFs With Active Options”

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  7. [...] over $1.2 billion in assets and trades more than 10 million shares each day. That combined with an active options market makes this one of the most liquid and trade-able commodity instruments on the [...]

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