My theory of exchange-traded funds is that they are an easy way to package trades. Anyone — any broker or financial adviser or individual investor — can think up a trade, and there are infinite possibilities. “Buy Tesla stock” is a trade, and “borrow money to buy more Tesla stock” is a different trade, and “buy Tesla stock and also buy Ford stock” is a third trade, and “buy Tesla stock and short an equal dollar amount of Ford stock” is yet another trade, and “buy Tesla stock and also buy some Dogecoin,” and “buy Tesla stock and sell call options on Tesla,” and “buy Tesla stock and also put options on Tesla,” and “buy Tesla stock and buy puts and sell calls,” and “buy Tesla stock and buy puts and sell calls but with different strike prices,” and “buy Tesla stock on Mondays and sell it on Wednesdays,” and so on, a tedious infinite list of potential trades just involving Tesla.
All of these are potential trades that someone could do, and many of them exist as actual trades that someone has done, but if enough people all want to do roughly the same trade — or if some enterprising marketer thinks she can get enough people to want to do the same trade — then they can be packaged into an ETF. And then, if you want to do “buy Tesla stock and buy puts and sell calls,” you don’t have to go to your brokerage and get approved to trade options and calculate how many options to buy and sell and worry about margin and click a lot of different buttons. You just click the one button — “buy the Tesla collar ETF” — and you get the trade.