Foreign stocks can be profitable, but they’re often overlooked by investors who keep their portfolio seeped in domestic markets. Thankfully, the humble ADR, or American Domestic Receipt, allows foreign companies to trade on US markets without all of the hassle and complication that’s usually involved in trading on a foreign exchange.
Trading foreign stock options through ADRs:
There’s plenty of info to absorb involving ADRs, but for the purposes of this article, I want to point out the matter of currency exchange rates. When a foreign company opens their shares up to American exchanges through ADRs, the resulting ADS (American Depositary Share) is traded in US Dollars.
The original stock doesn’t change, however, and continues to be traded in the foreign business’ native currency. This means that there’s another layer of price movement with an ADR in the form of changes in currency values. This means that if you hold an ADS in a Eurozone stock and the value of the Euro increases 5% versus the USD, then it’s likely that the value of the ADS will also rise 5%. It does this without any actual change in the value of the stock itself.
With this in mind, I recommend employing standard FOREX trading considerations and strategies to the trading of ADRs and ADR options.
So, How Do I Trade ADR Stock Options?
If you’re looking to trade ADR options, then look no further than the Chicago Board Options Exchange. The CBOE carries a number of foreign stock options in the form of Exchange Traded Funds, or ETFs. As with most ADR trading, you’ll be able to diversify into foreign markets while enjoying all of the disclosure and transparency of domestic markets.
Trading ADR options is no different than trading common stocks or domestic ETFs. The following is a list of the twenty-six ETFs available for ADR options trading (in alphabetical order by symbol):
|BKF: iShares MSCI BRIC Index Fund
DGT: streetTRACKS® – DJ Global Titans Index Fund
EEB: Claymore/BNY BRIC
EEM: iShares® MSCI Emerging Markets Index
EFA: Options on iShares® MSCI EAFE® Exchange Traded Fund
EWA: iShares® MSCI Australia Index Fund
EWC: iShares® MSCI Canada Index Fund
EWD: iShares® MSCI Sweden Index
|EWG: iShares® MSCI Germany Index
EWH: iShares® MSCI Hong Kong Index
EWI: iShares® MSCI Italy Index Fund
EWJ: iShares® MSCI Japan Index
EWL: iShares® MSCI Switzerland Index Fund
EWM: iShares® MSCI Malaysia Index Fund
EWP: iShares® MSCI Spain Index
EWS: iShares® MSCI Singapore Index Fund
|EWT: iShares® MSCI Taiwan Index Fund
EWW: iShares® MSCI Mexico Index
EWY: iShares® iShares MSCI South Korea Index Fund
EWZ: iShares® MSCI Brazil Index Fund
EZA: iShares® MSCI South Africa Index
FXI: iShares FTSA/Xinhua China 25
GXC: SPDR S&P China ETF
HAO: Claymore/AlphaShares China Small Cap Index ETF
QDF: BLDRS Emerging Markets 50 ADR Index Fund
VGK: Vanguard European ETF
- can you buy options on american depositary