An ETF is very interesting for MMJ because many of the companies are OTC and a lot of people have brokers and trading platforms that do not allow the trading of OTC stocks. Sure, they may have a trading account with some funds in it, but their IRA and 401(k)s are likely larger and are less likely to allow OTC stock purchases. The MMJ ETF gives them exposure to OWCP, and that's good for us.
Second, the very act of creating an ETF requires the issuing company to purchase shares of the constituent stocks and hold them in trust. Most ETFs actually allow you to pay a fee and convert the ETF to the underlying stocks (not much reason to do this unless you do arbitrage), but as you can imagine the trusts have to have the shares available to do these periodic conversions. So, more of OWCP shares will be "locked up" as we like to say, with Super Kung Fu Grip in the case of an ETF trust.
Third, all small ETFs are arbitraged by program trading systems. You see, the price of the ETF is determined in almost real time by the value of the underlying shares. It's the almost that's key here. Say you could freeze time and compare all the stocks in the MMJ ETF to the ETF itself. For simplicity sake, say the ETF is trading at $51.50 and all the component stocks in the proper ratio are worth $52 (very math intensive, but to get that value you take the ETF's share ratios and just multiple by bid/ask- .001 of GWPH + .1 of OWCP + .01 of CARA, etc). A trading program can simultaneously issue a Buy order for the ETF at $51.50 and a Sell order of the underlying stocks (which in arbitrage is called "the basket"
for $52. Boom! 50 Cents profit per share of ETF. Program trading systems can do that every millisecond.
Fourth, having the arbitrage of the ETF will keep the Market Makers a lot more honest. If they move the bid/ask for no reason, it will get picked off by the trading programs. You see, any time the value of the ETF and the total value of the composite stocks don't match, the buy programs will snatch the shares up. Look up High Frequency Trading to learn more about these programs and how they account for a massive amount of trading volume on the big boards.
Fifth, exposure. When an investor hears about GWPH or CARA or ZYNE they will note that that stock is in an MMJ ETF. When they look at the ETF they'll see OWCP. Boom! Free marketing.
Sixth, trading volume increase. The more liquidity in a stock, generally speaking, the more stable the price.
Second, the very act of creating an ETF requires the issuing company to purchase shares of the constituent stocks and hold them in trust. Most ETFs actually allow you to pay a fee and convert the ETF to the underlying stocks (not much reason to do this unless you do arbitrage), but as you can imagine the trusts have to have the shares available to do these periodic conversions. So, more of OWCP shares will be "locked up" as we like to say, with Super Kung Fu Grip in the case of an ETF trust.
Third, all small ETFs are arbitraged by program trading systems. You see, the price of the ETF is determined in almost real time by the value of the underlying shares. It's the almost that's key here. Say you could freeze time and compare all the stocks in the MMJ ETF to the ETF itself. For simplicity sake, say the ETF is trading at $51.50 and all the component stocks in the proper ratio are worth $52 (very math intensive, but to get that value you take the ETF's share ratios and just multiple by bid/ask- .001 of GWPH + .1 of OWCP + .01 of CARA, etc). A trading program can simultaneously issue a Buy order for the ETF at $51.50 and a Sell order of the underlying stocks (which in arbitrage is called "the basket"
for $52. Boom! 50 Cents profit per share of ETF. Program trading systems can do that every millisecond. Fourth, having the arbitrage of the ETF will keep the Market Makers a lot more honest. If they move the bid/ask for no reason, it will get picked off by the trading programs. You see, any time the value of the ETF and the total value of the composite stocks don't match, the buy programs will snatch the shares up. Look up High Frequency Trading to learn more about these programs and how they account for a massive amount of trading volume on the big boards.
Fifth, exposure. When an investor hears about GWPH or CARA or ZYNE they will note that that stock is in an MMJ ETF. When they look at the ETF they'll see OWCP. Boom! Free marketing.
Sixth, trading volume increase. The more liquidity in a stock, generally speaking, the more stable the price.
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