By Stephen D. Simpson

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, thats not always the case with options on ETFs. Its 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.

1. SPDR Gold Trust (NYSEARCA: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. Thats not necessarily significant relative to the volume of options for the granddaddy of ETFs, the SPDR S&P 500 ETF (NYSEARCA:SPY ), but its large within the realm of commodity ETFs and its liquid enough for the purposes of most investors.
2. Market Vectors Gold Miners (NYSEARCA: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, its 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.
3. SPDR Energy Sector (NYSEARCA: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 (NYSE:XOM ) or Chevron (NYSE: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 (NYSEARCA: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.
5. iShares Silver Trust (NYSEARCA: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 (NYSEARCA: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 (NYSEARCA:OIL ), U.S. Brent Oil (NYSEARCA:BNO ), and iPath Copper Sub-Index (NYSEARCA: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 are time of writing.