|
Buying into the Dow
|
 |
June 10, 1997: 8:57 p.m. ET
New products this fall will bring the Dow to you and your checkbook
From Correspondent Jody Davis
|
NEW YORK (CNNfn) - The Dow Jones industrial average has been around for 101 years, but it's not too old to try something new.
Dow Jones & Co. announced last week that several new investment products will make it easier than ever to track the venerable bellwether average. Investors will get a shot at gambling on the Dow starting this fall.
"Historically, you've had one way to do it. You'd go out and buy one share or 100 shares of each of the underlying 30 stocks, and you would have a portfolio that acted like the Dow Jones industrial average," American Stock Exchange President Tom Ryan said.
"The great advantage of the mutual fund that will be traded on the American Stock Exchange is that you can do it all with one purchase," he said.
Other new Dow-related investments will be cheaper than similar funds for the S&P 500, which until now was the most prominent stock futures index. On the Chicago board options exchange, investors will be able to buy Dow puts and calls.
To hedge a $100,000 portfolio, for example, you could buy a 3-month put -- a bet that the Dow will decline -- for about $3,500 dollars. A similar put on the S&P 100 would cost $5,900.
You'll also be able to buy Dow futures, requiring much less in margins, or collateral, than a current S&P 500 contract.
But the Dow does have its downside as an index.
"The Dow, because it's only 30 stocks [and] because of characteristics of how it's calculated … can be very sensitive to price changes," Value Line analyst Steve Savage said.
"One stock in the Dow can cause big swings," he said. "The S&P is a little safer representation of the market, [because] it's less subject to whims and random events that might affect the Dow."
Already, competition seems to be bringing down prices. The Chicago Mercantile Exchange now plans to launch a miniature S&P 500 futures contract with much smaller margins. 
|
|
|
|
|
 |
|
