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  • Comparing Nasdaq 100 ETFs: Real-Life Examples with QQQ & QQQM – August 29, 2022

    Over the years, the most frequently used ETF in my portfolios has been Invesco QQQ Trust (Nasdaq: QQQ). Premium members have noticed that, lately, a relatively new eligible security in our Premium Members ETF Reports has been QQQM (Invesco Nasdaq 100 ETF). Both are based on the Nasdaq 100 Index. This article will highlight the similarities and differences between these 2 securities and offer guidance as which is best suited for our option-selling portfolios.

    What is QQQ?

    QQQ is an exchange-traded fund based on the Nasdaq-100 Index®. The Fund will, under most circumstances, consist of all of stocks in the Index. The Index includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization. The Fund and the Index are rebalanced quarterly and reconstituted annually.

    What is QQQM?

    QQQM is an ETF based on the NASDAQ-100 Index (Index). The Fund will invest at least 90% of its total assets in the securities that comprise the Index. The Index includes securities of 100 of the largest domestic and international nonfinancial companies listed on Nasdaq. The Fund and Index are rebalanced quarterly and reconstituted annually.

    What are the corresponding expense ratios (fees inherent in the securities)?

    • QQQ: 0.20%
    • QQQM: 0.15%

    Option expirations

    • QQQHas Weeklys & LEAPS
    • QQQM: No Weeklys or LEAPS

    Similarities

    Same underlyings

    • Same price performance
    • Same implied volatility
      • Risk
      • Returns

    QQQ Advantages

    • More liquid
    • Tighter spreads
    • More expiration choices (3 per week)

    QQQM Advantages

    • Lower expense ratio
    • Less than half the price

    Type of investor

    Trader: Favor QQQ:

    • Large asset base
    • Highly liquid
    • Narrow spreads

    Long-term, buy-and-hold: Favor QQQM

    Save 0.05% in administrative costs

    Price performance comparison chart (yes, there are 2 lines in this chart- no difference)

    QQQ & QQQM 1-Year Comparison Chart

    Implied volatility comparison (no difference)

    QQQ & QQQM Implied Volatility Comparison

    Option liquidity and strike choices (advantage QQQ)

    QQQ: Greater Liquidity and More Strike Choices Than QQQM

    Return on option (ROO)- no significant difference

    QQQ & QQQM Initial Calculations

    The BCI Trade Management Calculator shows a slight difference in the initial calculations (brown cells). This was due to 1 strike being slightly in-the-money: the other slightly out-of-the-money. Overall, there is no difference in expected returns.

    Discussion

    For short-term option-selling, an edge goes to QQQ because of its liquidity advantage and abundance of expiration choices. If capital is limited, QQQM may be a more practical selection. For long-term investing, a very slight edge to QQQM because of its lower expense ratio.

    Author: Alan Ellman

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