Have you ever thought about trading the Dow Jones Industrial Average? Two of the more popular ways of trading the 113-year old average: 1) the Dow Jones DIAMONDS, symbol DIA and 2) the Dow Jones Industrial Index, .DJX. Both are designed to equal roughly 1/100th of the Dow. So, at today’s levels, the industrial average is trading around 8,666, DJX equals 86.66 and DIA is equal to $86.80 per share.

Which is better?

Both the DIAMONDS and the Dow Jones Industrial Index are great tools for trading broader market trends and one really isn’t superior to the other. However, there are subtle difference that might determine if one is better for the individual options strategist.

First, DIA is an exchange-traded fund and shares trade on the exchanges like a stock. However, rather than owning shares in one company, DIA allows investors to buy (or sell short) all 30 Dow stocks in one transaction. On the other hand, DJX is an index. It isn’t possible to buy or sell an index. Therefore, if an investor is looking to use options along with shares, such as a buy-write or protective put strategy, there is only one choice: DIA.

Since DJX is an index, the settlement of the options involves the transfer of cash (equal to the strike price of the option minus the settlement value of the index.) Stocks and ETFs (like DIA) settle for shares at expiration.

Finally, like most (but not all) cash-settled indexes, DJX options settle European-style, which means the exercise and assignment can only happen at expiration. Stocks and exchange-traded funds settle American style, which means the exercise and assignment can happen anytime before expiration. Therefore, for strategies where the investor doesn’t want to run the risk of early assignment, like some credit spreads, the DJX is better than the DIAMONDS.