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Ram Srini has been in the finance industry for 7 years. His main focus has been in the area of rate derivative valuations and OTC derivative trading. Ram holds a MBA from University of Illinois and is a CFA charterholder. He also pursues an advanced degree in Mathematics and researches short... More
My blog:
Option Trading on S&P
  • Leveraged ETF With Options 0 comments
    Dec 1, 2012 4:08 PM | about stocks: SSO

    Leveraged ETF, the dreaded instrument which I think gets a bad rep for retail portfolios is something of recent interest to me.

    In my prior post I talked about emini S&P options as being a low risk alternative for individual investors to play the broad market via options.

    Most retail portfolio's as per a latest study seem to suggest that an average investor trading options takes 5 time more risk than big prop trading desks and hedge funds.

    Now I think, why not reduce some of that by combining LETFs. After all this is nothing more than a future contract on which the option is being traded. It gives you a delta exposure without the costly margin rules for delta hedging.

    So something new to think about : Buy deep OTM emini Puts to protect against fiscal cliff dilemma and buy 2X LETF on S&P. Weight the notional based on your risk preference. Put a floor to exit out of LETF should the market slide down. Holding period around 30days.

    OTM puts are still relatively cheap.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Themes: Option Trading Stocks: SSO
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