The Case for Switching to Internet Television
Virtually nobody likes their cable TV provider. Every year they keep raising prices hoping that you won’t switch and offering great prices for new customers only. They make you rent a box for every TV you own for an extra $10 per month even though you have paid more than the boxes are worth over time. And just when you sit down to watch the big game, you realize that it is only on Fox Sports 1 and you have to find a sports bar ASAP.
Fortunately there are now three awesome solutions that will allow you to turn in your cable box(es), save you money, and love TV again. I have been showing my clients the benefits of Sling.tv, Direct TV Now, and Sony PlayStation Vue for a few months and have helped them save $50 to $200 per month off of their cable bills. Internet TV is fabulous and let me show you how to move to the TV of the future.
Go Buy an Amazon Fire Stick Now
When I first started looking into getting cable through the internet I was disappointed to learn that both Sling TV and Direct TV Now would not work on my smart TV or through my Sony Playstation 3. Although I didn’t want an extra remote to keep up with, I am very happy I spent the $40 for an Fire TV stick. It is a small dongle that fits into one of the HDMI ports on the back of your TV and needs to be plugged into an electric outlet or a USB port for power. I thought I would only use the remote for internet cable, but I have found it offers so much more.
The Fire TV stick has an enormous selection of apps all in one place and has become the default portal to my entertainment on my TV. I use it to access Amazon Prime Video, Netflix, HBO Now, Youtube, and my new DirecTV Now subscription. You can also subscribe to individual stations like STARZ or Acorn TV to get your British TV fix.
The last great thing about a Fire TV Stick is that it is equipped with an Alexa Voice remote. It turns your TV into an Amazon Echo without you having to shell out an additional $180. You can ask it to play music, search for content, fast forward, and even order a Domino’s pizza. I recommend that you go to Settings -> Alexa -> Things to Try on your Fire Stick to learn all of the great things it can do. Expect Alexa to do even more as this technology improves in the future.
The search feature isn’t perfect yet, but it is pretty good. I just tried saying “play Deadpool” and the app realized that show is currently available on my HBO GO app. It also showed me that I could purchase it through Amazon. I then tried saying “play Scandal.” It instantly found that I could watch it for free through my Netflix subscription. Lastly, I tried “Captain America: Civil War” and it did not recognize that movie was in the Netflix catalog and only gave me the option to rent it or buy it through Amazon. With the arms race between Alexa, OK Google, Siri, and Cortana I expect this technology to be really good in three years.
Choose Your New Cable Provider
Hopefully you just ordered your Fire TV Stick. Now you need to determine which internet TV provider to go with. I suggest that you click on the following links to compare the channel line ups:
When I help clients sign up for these services, I find that different people value different programming. If your kids really like Nickelodeon, you may want to go with DirecTV Now or pay $5 with Sling to get the Kids Extra Package and not go with PlayStation VUE. I had one client that chose providers based on who had the Hallmark Channel (it is currently not on PlayStation VUE). You will also want to evaluate which service offers which local channels live in your local market. Some packages don’t have any local TV and other packages only offer local channels on demand (about 24 hours after a show has aired). I expect most services to offer most of the local channels live soon, but this can be a deal breaker for some people. I get pretty good reception with my HD antennae so local channels weren’t an issue for me.
After you have compared the channel line ups and packages there are a couple of things to consider. If having a DVR is really important to you, then PlayStation VUE has the only true DVR that is based in the cloud. I expect Sling and DirecTV Now to have one by the end of 2017. If you travel a lot and have AT&T as your cell phone carrier, you may favor DirecTV Now since you can stream TV to your phone without using your data. If you really love sports and want a good price, Sling TV’s $20 per month Orange package is really attractive.
I signed up with DirecTV Now because they had a limited time offer to get their 100 channel offering for only $30 per month (it is now $60). My wife and I absolutely love it. We have more channels than we could possibly watch. I can finally watch most sporting events that I want to. Even though it currently doesn’t have a DVR, you can save certain shows to your watch list and it will automatically add them after they have aired. The first season of Mr. Robot is available for free on Amazon Prime as is the first five seasons of Suits. After I have watched past episodes on Amazon, I can then watch the current seasons in my watch list.
All three services offer free trials and will offer free or reduced pricing for streaming devices (Amazon Fire Stick, Roku, Apple TV) if you prepay for one to three months. Unfortunately your streaming device will come in the mail deep into your free trial, so you may want to buy your device before you start the trial. If you like internet TV, then you will want to have a streaming device for each TV. You should also expect some frustrations as you learn how to use a new device, save shows, and navigate the new world of internet TV. It took me a frustrating half hour to figure out that I had to log into my Amazon.com account on my computer to download some of the apps to my Fire TV Stick. You probably have forgotten how hard it was at first to use you current cable provider.
Now go sign up for a free trial and you can thank me later.
Understanding ETF Liquidity and Trading
Written by: ProShares
ETFs offer attractive features—access to a broad range of asset classes, sectors and styles in a liquid, transparent and cost-effective vehicle. But before using that vehicle, it’s helpful to understand how it works, especially the sources of ETF liquidity and the mechanics of trading them. Understanding these points may help you improve execution when buying and selling ETFs.
The Primary Market—Creation/Redemption of ETF Shares
Most investors trade ETFs on stock exchanges in the secondary market. But the actual creation and redemption of ETF shares occur in the primary market, between the ETF and authorized participants (APs)1—the only parties who transact directly with the ETF. The APs’ ability to continuously create and redeem shares allows them to meet the supply and demand needs of investors, making them key liquidity providers in the secondary market.
Creation. This is how APs introduce new ETF shares to the secondary market.
- In-kind—The AP creates ETF shares in large increments—known as creation units—by acquiring the securities that make up the benchmark the fund tracks in their appropriate weightings and amounts to reach creation unit size (blocks ranging from 25,000 to 100,000 fund shares). The AP then delivers those securities to the ETF in exchange for ETF shares.
- Cash—Alternatively, APs can create ETF shares by exchanging the appropriate amount of cash for ETF shares, for what’s known as a cash create. Often, ETF shares are created using a combination of securities and cash.
- The AP then offers the ETF shares for sale in the secondary market, where they are traded between buyers and sellers on an exchange.
Redemption. This follows the same process in reverse.
- The AP redeems ETF shares in large increments—known as redemption units—by acquiring them in the secondary market and transferring them to the ETF in exchange for the underlying securities or cash (or both) in the appropriate weightings and amounts.
The Secondary Market—Costs and Mechanics of Trading ETF Shares
Costs of Trading. In the secondary market, firms that specialize in buying and selling ETF shares—APs or market makers2 (liquidity providers)—trade them to provide market liquidity and make a profit. This profit margin is embedded in the bid/ask spread, which reflects the implicit costs of trading ETFs.
Bid/ask spread is the difference between the bid—the highest price at which a buyer is willing to buy shares—and the ask—the lowest price at which a seller is willing to sell ETF shares. Three key factors impact the bid/ask spread:
- Creation/redemption fees charged by the ETF provider to the AP.
- Spread of the underlying securities—The bid/ask spread and liquidity of the securities that make up the ETF affect the liquidity and the bid/ask spread of the ETF itself. When there are many bids and offers on a security, it is easy to buy and sell, thus the bid/ask spread tends to be tight. When securities are less liquid, the spread is wider, making the cost to acquire them higher. The higher the cost of acquiring the underlying securities, the wider the ETF bid/ask spread.
- Risk or hedging costs—Holding ETFs entails certain risks, which need to be hedged. Liquidity providers use a variety of financial instruments, including futures, options and other ETFs, to hedge this risk. The more instruments they have to choose from, the lower their hedging costs and the lower the bid/ask spread. The higher the risk, the wider the spread.
ETF bid/ask spread = Creation/redemption fees + spread of underlying securities + risk
Executing Large Orders—Tapping Into Deeper Pools of Liquidity
There are two common ways to execute larger trades directly with liquidity providers, both allowing investors to access deeper pools of liquidity than those offered in the quoted secondary market alone:
- Risk trade—A liquidity provider will quote a price for an ETF at a given size. If that price is accepted, the trade is executed and the liquidity provider assumes the market risk of providing the liquidity at execution.
- Create/redeem—For orders that are large enough, it may make sense to work with an AP to create or redeem shares. This type of transaction is usually executed at either the closing market price of the ETF or at the NAV of the ETF plus fees or commissions.
Mechanics of Trading. To fully consider an ETF’s total costs, it is important to understand the dynamics of trading. In general, two types of orders are commonly used to trade ETF shares:
- Limit order—Buy or sell ETF shares at a specified price. One way investors decide at what price to enter a limit order is to look at the IOPV3 as a guidepost. Limit orders may help investors get the best price, but there’s a risk the order will not be filled.
- Market order—Buy or sell immediately at the prevailing price available at the time. With market orders, execution may be faster, but the investor has limited control over the execution price.
While a large number of transactions are executed using limit or market orders, investors often find their order is larger than the quoted market. There may be “hidden” liquidity within the quote that can be accessed in the market using limit or market orders. However, in some cases, it may make sense to execute trades directly through a liquidity provider. How and when to place an ETF order can depend on many factors, including price sensitivity, level of urgency and overall goals for the portfolio. Determining what factors matter most can help determine the best execution strategy.
Questions? Our capital markets experts can help. Learn more about our ETFs here.
1 An AP is a U.S. registered, self-clearing broker/dealer who signs an agreement with an ETF provider or distributor to become an authorized participant of a fund.
2 A market maker is a broker/dealer that buys and sells securities (or ETFs) from its own inventory to facilitate trading in those securities. Most APs are market makers, but not all market makers are APs.
3 IOPV is the Indicative Optimized Portfolio Value—the intraday net asset value of the basket of underlying securities
Investing involves risk, including the possible loss of principal. ProShares are non-diversified and each entails certain risks, which may include risk associated with the use of derivatives (swap agreements, futures contracts and similar instruments), imperfect benchmark correlation, leverage and market price variance, all of which can increase volatility and decrease performance. Please see their summary and full prospectuses for a more complete description of risks. Carefully consider the investment objectives, risks, charges and expenses before investing. This and other information can be found in the prospectus; read carefully before investing; obtain at ProShares.com. There is no guarantee any ProShares ETF will achieve its investment objective.
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