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Leveraged ETF With Options

|Includes:ProShares Ultra S&P 500 ETF (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.

Stocks: SSO