Options on ETF

[bensho]

(1) When we trade options on an ETF (the QQQQ for example)- do these options give us the right to buy/sell the ETF? or the underlying itself (the stocks for example)?

(2) If the publisher of an ETF has collapsed, the ETF will probably go down to zero while the underlying can stay at a high point.
If we wrote a Put option on this ETF before the collapse, do we have the obligation to pay all the money between the strike to zero in this case? although the underlying might be at a high point ?

(3) If the publisher of an ETF has collapsed and we bought the ETF before the collapse, do we receive the underlying (the stocks for example)? or is it only for big investors?

Thanks!

 

[Rhody Trader]

(1) When we trade options on an ETF (the QQQQ for example)- do these options give us the right to buy/sell the ETF? or the underlying itself (the stocks for example)?

The options are on the ETF. That is the only underlying which is deliverable on the options contract should it be executed.

(2) If the publisher of an ETF has collapsed, the ETF will probably go down to zero while the underlying can stay at a high point.

That's not necessarily true. You'll want to research the specifics, but I believe that in most cases the assets/liabilities underlying an ETF are segregated from the managing company's.

 

[fibonelli]

I've done a fair bit of research into ETFs.

There are broadly two types of ETFs

1) "In specie" aka physical ETFs
Here, the ETF represents actual shareholdings. If the management company goes bankrupt, you should be able to rely on the values of the individual shareholdings in the ETF.
But, management companies engage in stock lending to generate income for both the mangement company and the ETF. The problem with this is that any assets on loan are exposed to counterparty risk.

2) Synthetic
Here, the ETF represents an agreement through the use of derivatives. The ETF doesn't own anything apart from a promise from a counterparty to mirror the gains, losses and original start value of an index or asset.
In other words, they are debt instruments. You are exposed to credit risk of the counterparty, and if the counterparty goes bankrupt, you lose your money.

You must read the prospectus before risking any money.

 

[bensho]

fibonelly -
The type you mentioned as No. (2) is called an ETN, not an ETF, This is actually the main difference between them.

I already know all you wrote, I'm still looking for answers to my questions, but thanks for your reply!

 

[fibonelli]

fibonelly -
The type you mentioned as No. (2) is called an ETN, not an ETF, This is actually the main difference between them.

I already know all you wrote, I'm still looking for answers to my questions, but thanks for your reply!

There are ETNs described as ETFs and ETCs. You don't know until you read the prospectus.