Hi everyone,
A bit of a weird question. I am new to options investing (been a long only investor for a while).
I was wondering how you would use options to leverage a portfolio, but only up to 33% of the total.
So if I had $667K to invest, I want to add about $333K worth of options to that.
How would you do that?
Do you just spend that amount? or is there a better way to do this?
Using options to leverage a portfolio
byu/jcPhenton inoptions
Posted by jcPhenton
5 Comments
#1 … I would not use that much money. What I like to do in my account is buy LEAPS or longer dated options. When a good company has earnings that the market doesn’t like I buy. I use maybe $10k or so for the options. I did this with COST. When their earnings came up again recently I sold 1/2 of what I had which was +85%… after earnings I bought more at a different date. Cheaper than stock and better return but you have to be right so don’t get silly. Idk why the font is so big … sorry
I don’t entirely understand what you mean by ‘leverage a portfolio’, but I sometimes buy a long ITM call on a ticker, if my thesis is that there is some good news in the foreseeable future.
How deep ITM let’s me control the leverage to a certain degree.
One relatively simple way is to buy and hold 85 percent SPY and 15 percent triple leveraged etf SPXL. Maybe rebalance every three months so ratio goes back to 85-15.
With options there are similar ways but can be overwhelmingly complicated for a novice.
I would only suggest this for someone with a good income and high savings rate. Otherwise the downside risk during a bear market can be financially crippling.
You can use options to take a synthetic long position eg buy 6 $530 calls and sell 6 $530 puts at the same strike on SPY. You now control $530*600 = $318,000 of SPY with about $100,000 of margin required, and the cost of the calls should be roughly offset by the money you received by selling the puts. With this strategy you’d probably want to go 6-18 months out
Sure you can. You calculate the beta of your portfolio in dollar terms then buy additional index option such that your portfolio’s beta weighted dollar delta is 1.5x of your net liq. Google all those terms.