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Options Make a 'World' of Difference

By Bryan Perry

We can trade options on thousands of U.S. stocks, indexes and exchange-traded funds (ETFs). But with America's growing interest in trading foreign stocks, how can an options trader take advantage of, and profit in, the international stock market?

One region receiving a lot of attention is Asia -- particularly China and India, which Wall Street also refers to as "Chindia." These emerging markets have caught the attention of many traders, both those who are bullish on continuing growth in these areas, as well as bearish investors who want to be positioned for a global market sell-off.

The easiest way to play this is by purchasing bundles of foreign stocks safely through ETFs. These are created by firms that are willing to assume the risk of buying the underlying stock, while you sit back and leverage your position with options. This way, you're investing in a basket of stocks, but with one single transaction to make a sector play.

If you're not interested in researching all of the companies in a particular ETF -- as there are hundreds of ETFs to choose from and each contains approximately 20 stocks -- and instead have one company in mind for purchasing options, you can look into American Depositary Receipts (ADRs).

With ADRs, foreign companies can trade on their home exchanges but also maintain separate securities on U.S. exchanges by committing to domestic listing and accounting regulations. But, just because a foreign company is transparent and adheres to accounting regulations doesn't mean that its underlying price won't decline in sympathy with trading activity in its home market.

Best of all, finding options for ADRs is as easy as finding them for domestic stocks. In fact, recently, my Tactical Trader subscribers closed out an 83% options trade in an ADR called China Medical Technology (CMED).