Trading ADR Options & Foreign ETFs

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:

Note:

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

 

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