Chapter 32: Structured Products 639 
Another major segment of ETFs are called Holding Company Depository 
Receipts (HOLDRS). They were created by Merrill Lynch and are listed on the 
AMEX. 
Options on ETFs. Options are listed on many ETFs. QQQ options, for example, 
are listed on all of the option exchanges and are some of the most liquid contracts in 
existence. Things can always change, of course: Witness OEX, which at one time 
traded a million contracts a day and now barely trades one-thirtieth of that on most 
days. 
The options on ETFs can be used as substitutes for many expensive indices. 
This brings index option trading more into the realm of reasonable cost for the small 
individual investor. 
Example: The PHLX Semiconductor index ($SOX) has been a popular index since 
its inception, especially during the time that tech stocks were roaring. The index, 
whose options are expensive because of its high statistical volatility, traded at prices 
between 500 and 1,300 for several years. During that time, both implied and histor­
ical volatility was near 70%. So, for example, if $SOX were at 1,000 and one wanted 
to buy a three-month at-the-money call, it would cost approximately 135 points. 
That's $13,500 for one call option. For many investors, that's out of the realm of fea­
sibility. 
However, there are HOLDRS known as Semiconductor HOLDRS (symbol: 
SMH). The Semiconductor HOLD RS are composed of 20 stocks (in differing quan­
tities, since it is a capitalization-weighted unit trust) that behave in aggregate in much 
the same manner as the Semiconductor index ($SOX) does. However, SMH has trad­
ed at prices between 40 and 100 over the same period of time that $SOX was trad­
ing between 500 and 1,300. The implied volatility of SMH options is 70% - just like 
$SOX options - because the same stocks are involved in both indices. However, a 
three-month at-the-money call on the $100 SMH, say, would cost only 13.50 points 
($1,350) - a much more feasible option cost for most investors and traders. 
Thus, a strategy that most option traders should keep in mind is one in which ETFs 
are substituted when one has a trading signal or opinion on a high-priced index. 
Similarities exist among many of them. For example, the Morgan Stanley High-Tech 
index ($MSH) is well known for the7eliability of its put-call ratio sentiment signals. 
However, the index is high-priced and volatile, much like $SOX. Upon examination, 
though, one can discover that QQQ trades almost exactly like $MSH. So QQQ 
options and "stock" can be used as a substitute when one wants to trade $MSH.