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para
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How to customize Leverage on a downside price Option Strategy ?

August 20th, 2022, 5:22 pm

How would you devise and customize a 4 Times Leverage on a Stock Price downward movement using Options, that holds the position for 1 year ? ( to do this, i know likely rolling the option would be necessary, that is fine as well)

Also, how would you devise and customize a 4 Times Leverage on Synthetic Short Stock Option Strategy ?
 
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Alan
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Re: How to customize Leverage on a downside price Option Strategy ?

August 21st, 2022, 3:19 pm

Probably a bad idea. If the target is SPX (or some other broad index), seems more sensible to just short the associated futures (say quarterly and roll them), collateralizing them to get/maintain your desired leverage. Of course, it's a very risky position, but more likely to do what you want over intermediate time frames.  
 
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Re: How to customize Leverage on a downside price Option Strategy ?

August 21st, 2022, 5:20 pm

Not a broad index, let's say for an individual stock or security. 

For the Futures Roll, it is very risky like you said, you have to put margin and subject to margin calls, if the position goes against you. For a ETF Funds or other Funds, this is not a huge risk, as they would have the excess capital to withstand adverse positons, so it makes sense to do a Futures Roll.
 
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Re: How to customize Leverage on a downside price Option Strategy ?

August 22nd, 2022, 12:12 am

Alan, 

So what are the reasons you think it is a bad idea ?

Expand on what you said " collateralizing them to get/maintain your desired leverage " ?
 
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Alan
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Re: How to customize Leverage on a downside price Option Strategy ?

August 22nd, 2022, 1:22 pm

Alan, 

So what are the reasons you think it is a bad idea ?
 >> An options-based leverage is too variable (see bearish's formula) and/or (given bid/ask spreads) too costly to maintain,

Expand on what you said " collateralizing them to get/maintain your desired leverage " ?
>> Just keep rebalancing the amount of cash collateral to maintain the desired leverage