without bad intentions,
dont you ever get sick of those hypothetical performance reports ?
dont you ever get sick of those hypothetical performance reports ?
BWolinsky Trading
- Thread starter bwolinsky
- Start date
- Status
Well I was at 83 pages, and 494 replies. Have no idea where the other three posts went. Probably don't want to know either, and I'm sure whatever was on there was completely off topic and most likely derogatory and offensive.
I would encourage anybody reading this to ask me any questions.
Mainly, my story is well....completely available at wl4.wealth-lab.com, wealth-lab.com, collective2.com, and, especially on elitetrader.com. Google searches for my name pull relevant topics, too.
Anyway, I started in college prior to my junior year with a 6 figure bankroll of family money. I completed my BS in Financial Economics and a minor in mathematics a couple years after that, and found a firm in Chicago looking for independent investment advisor representatives. It was an entrepeneurial position with no salary, a few thousand dollars of legal fees to incorporate, and passing series 65 and life insurance licenses. I had done internships at local financial services companies that had shown me all you really need to run an investment advisory firm or to even work with one is to find a reliable custodian and an excellent third party asset manager. On those I was happy that the broker I'd used in college, Fidelity Investments, was also to be my custodian for client assets. I utilize Envestnet asset management because I'm able to access institutional level managers that have negotiated with independent advisors at much lower, reasonable minimums. At the 100k level, I get $10 million minimum manager, and once you are to $250k, that minimum goes up to $30 million with managers no other advisor other than an Envestnet advisor can offer. I'm happy with the performance since I started in January 2007. Most clients have actually made money in this market on the backs of outstanding cautious approaches (not that they weren't down, though) timed perfectly with aggresive actions near the end of the first quarter this year.
I started on C2 with a shell model I found on Wl4.wealth-lab.com, now on wealth-lab.com. Did well with it for a few months, then realized that static (meaning hardcoded, set in stone values) of overbought and oversold levels were not a long term profitable solution. So what was the solution? I used volatility as the basis for the overbought and oversold levels. It made perfect intuitive sense consitent with my education, and progress through that point in the CFA curriculum that mentioned pairs trading was an acceptable form of instiutional trading strategies. Around August 2007 the QID and QLD system went to 200k by July of the next year, doubling. Then volatility started to pick up in a big way particularly on November 1st, 2007, practically at the top. I bought QID that day, and stupidly added a trailing stop during the trade when QID was around 34.6. A day after trail stopping out, we had not crossed back over the overbought threshold as I thought we would. We were extremely close, but that didn't stop the market from crashing 10% over the next 5 trading days. One of my subscribers mentioned he'd put 100% of his money into a QQQQ put, and said he would have made about 150%. I would probably still have kept a lot more subscribers if I had called that right. At that time I had 40 subscribers, and they were absolutely affecting my personal trading performance. I was advertising as a featured system, though, but it just proves the subs on c2 only subscribe if you are up and your annualized rate is above 200%. Well, all the stats were definitely good. Sharpe at 3, APD at 1.4, dd at 18%. I'd just say that if you really go into subscribing to a system with those stats, I would tell you that's essentially performance chasing. Just as you'd be looking at a price chart and maybe a sharpe ratio of a mutual fund, the same rules would apply to high fliers. I turned my subscribers away at 185k, up about 85% because I was in the process of changing my affiliations, now at SCF Investment Advisors from TREW Capital Management at trewfinance.com.
All through this studying for the CFA curriculum. I had taken level I of the CFA curriculum in June of 2008, and had passed, immediately registering for level II. I studied a boat load for that, neglecting my marriage in the process. Having not passed this year, I have decided to put it off for a couple years, and make a pass at it when my employment situation improves to mid 70's salary, possibly 6 figures. I'm excited about 2010 because I feel like I have my ducks in a row presently. I now personally control a lot of money. I have a condo, though I'm trying to sell right now, two cars, a Nissan Rouge 2008, and a brand new paid in cash Mazda 3. I mean being three years out of college I'm really proud of my accomplishments.
I have yet to hear of any college age person starting their own independent RIA rep position straight out of college. So, the performance summaries may seem useless to you, but until you are actually able to produce mechanical systems with performance results that look like that, I can't say long term you can expect to succeed. Ironically, at one of my internships I spoke with the manager of SENBX, (oh, yeah, have a look at that one), at the time, I had just released the first Superbands that gave rise to the most profitable, publicly available trading systems. I asked Alan Murrell if he ever backtested his model? He said no. If he had, I guarantee his results would not look as atrocious as they do today. At the time he was convinced his poor performance was due to the timing of the inception of the fund near September 2000-2001. I guess I should give the background on this model. It was a quantiative analysis program built on an absolutely, mind bogglingly large time series dataset of all financial companies in the United States. He would regress this data as a time series onto the current logarithm of the market cap of the stock and purchase the 10 most undervalued securities on the first of each month until they were no longer in the top 50. I think he should have done more research on the risk characteristics of his strategies. He claims the model was built in the 70's, and this would have been around 2005. Today, I'm pretty sure no one would invest in SENBX if you put a gun to their head. (Have a look at the chart if you want to see what a quant with a CFA can still do to a fund in an attempt to have a reasonable basis as backup for losing 75%).
Really at that time I thought his model worked, but through the brokers at the then Hilliard Lyons branch in Danville, Kentucky, they mentioned a spat in the 80's where large positions in companies proved to be worthless investments some months after buying into them. I think that would have been the time in the mid 80's to examine the true validity of the model.
Now, I would say that the pairs model is working, and I'm really just experimenting with the Jack Hershey Cash Cow model. I doubt that would stop anybody from subscribing when it goes up 30% in a month at some point. It has hardly traded at all since March. Primarily because having .SPX volume at the 15 minute interval above 20,000 rarely happens past 10 AM EST. The volume filter is the reason it works, and I've seen ancient threads with snippets mentioning that 20,000 level with some basis.
I use the life insurance license to sell Allianz Fixed Indexed Annuities. We have a local financial advisor named Don Whales with his own radio talk show called "Capitalist Pigs" that constantly talks about these products. Really there isn't any other company you should consider buying fixed indexed annuities from, but occasionally there will be some that are just as competitive as the norm of Allianz. I'm usually aware of it as an agent through Crump Life Insurance with every insurer in the country at my disposal.
I spent today contemplating selling to open QQQQ puts and calls with position sizes in accordance with the delta of the option. I might do it, might not. I have put off options, though I have the privelege, because the liquidity in QID and QLD itself has greatly improved since moving to NYSE-ARCA.
My internship at KY Trust Company was coupled with research on the vast changes in NYSE and NASDAQ rules of equities market making. No, duh, a lot of their profits went to nothing after decimalization came. The allure of a day trader at the time, and I do have the book Day Trade Online, was all about splitting the nickel spread with the market maker. Now that spreads are a penny, this sort of riskless trade is not available but on the most illiquid of securities, and trades take place much to quick for this be any edge in any other liquid security. I bought that book around 2002, way after it was even possible, but it reads like a gambling book to me. Excerpts include "I finally hit a home run. Made $3,000 in ten minutes. I turned off the computer, and grabbed the clubs." If only it was that easy. It does include a very cathartic regret of losing 20 g's on citigroup at $93. LOL, I think you're lucky you didn't hold onto it, bud.
So, I think that covers my bio. I played Sousaphone, yeah, the big bell-toned shiny instrument, in marching band for the Boyle County Rebels. That same year I was awarded as a Kentucky Governor's Scholar that required me to stay at a college campus for 5 weeks during Junior and Senior Year of High School. It was great, though, it paid for a $100,000 education at Centre College. We were State Champions in 2001. Prior to relocating to Kentucky, I was in Springfield where I played Competitive Check Hockey. We are still the only Springfield PeeWee Hockey Team to have ever won the Missouri, Illinois league called MOAM.
Well, if you read this far, congrats. Now I'm sure you know a lot more about me, but, it's not anything that you couldn't figure out by googling my name.
Cheers!
Good Trading!
Beau Wolinsky
I would encourage anybody reading this to ask me any questions.
Mainly, my story is well....completely available at wl4.wealth-lab.com, wealth-lab.com, collective2.com, and, especially on elitetrader.com. Google searches for my name pull relevant topics, too.
Anyway, I started in college prior to my junior year with a 6 figure bankroll of family money. I completed my BS in Financial Economics and a minor in mathematics a couple years after that, and found a firm in Chicago looking for independent investment advisor representatives. It was an entrepeneurial position with no salary, a few thousand dollars of legal fees to incorporate, and passing series 65 and life insurance licenses. I had done internships at local financial services companies that had shown me all you really need to run an investment advisory firm or to even work with one is to find a reliable custodian and an excellent third party asset manager. On those I was happy that the broker I'd used in college, Fidelity Investments, was also to be my custodian for client assets. I utilize Envestnet asset management because I'm able to access institutional level managers that have negotiated with independent advisors at much lower, reasonable minimums. At the 100k level, I get $10 million minimum manager, and once you are to $250k, that minimum goes up to $30 million with managers no other advisor other than an Envestnet advisor can offer. I'm happy with the performance since I started in January 2007. Most clients have actually made money in this market on the backs of outstanding cautious approaches (not that they weren't down, though) timed perfectly with aggresive actions near the end of the first quarter this year.
I started on C2 with a shell model I found on Wl4.wealth-lab.com, now on wealth-lab.com. Did well with it for a few months, then realized that static (meaning hardcoded, set in stone values) of overbought and oversold levels were not a long term profitable solution. So what was the solution? I used volatility as the basis for the overbought and oversold levels. It made perfect intuitive sense consitent with my education, and progress through that point in the CFA curriculum that mentioned pairs trading was an acceptable form of instiutional trading strategies. Around August 2007 the QID and QLD system went to 200k by July of the next year, doubling. Then volatility started to pick up in a big way particularly on November 1st, 2007, practically at the top. I bought QID that day, and stupidly added a trailing stop during the trade when QID was around 34.6. A day after trail stopping out, we had not crossed back over the overbought threshold as I thought we would. We were extremely close, but that didn't stop the market from crashing 10% over the next 5 trading days. One of my subscribers mentioned he'd put 100% of his money into a QQQQ put, and said he would have made about 150%. I would probably still have kept a lot more subscribers if I had called that right. At that time I had 40 subscribers, and they were absolutely affecting my personal trading performance. I was advertising as a featured system, though, but it just proves the subs on c2 only subscribe if you are up and your annualized rate is above 200%. Well, all the stats were definitely good. Sharpe at 3, APD at 1.4, dd at 18%. I'd just say that if you really go into subscribing to a system with those stats, I would tell you that's essentially performance chasing. Just as you'd be looking at a price chart and maybe a sharpe ratio of a mutual fund, the same rules would apply to high fliers. I turned my subscribers away at 185k, up about 85% because I was in the process of changing my affiliations, now at SCF Investment Advisors from TREW Capital Management at trewfinance.com.
All through this studying for the CFA curriculum. I had taken level I of the CFA curriculum in June of 2008, and had passed, immediately registering for level II. I studied a boat load for that, neglecting my marriage in the process. Having not passed this year, I have decided to put it off for a couple years, and make a pass at it when my employment situation improves to mid 70's salary, possibly 6 figures. I'm excited about 2010 because I feel like I have my ducks in a row presently. I now personally control a lot of money. I have a condo, though I'm trying to sell right now, two cars, a Nissan Rouge 2008, and a brand new paid in cash Mazda 3. I mean being three years out of college I'm really proud of my accomplishments.
I have yet to hear of any college age person starting their own independent RIA rep position straight out of college. So, the performance summaries may seem useless to you, but until you are actually able to produce mechanical systems with performance results that look like that, I can't say long term you can expect to succeed. Ironically, at one of my internships I spoke with the manager of SENBX, (oh, yeah, have a look at that one), at the time, I had just released the first Superbands that gave rise to the most profitable, publicly available trading systems. I asked Alan Murrell if he ever backtested his model? He said no. If he had, I guarantee his results would not look as atrocious as they do today. At the time he was convinced his poor performance was due to the timing of the inception of the fund near September 2000-2001. I guess I should give the background on this model. It was a quantiative analysis program built on an absolutely, mind bogglingly large time series dataset of all financial companies in the United States. He would regress this data as a time series onto the current logarithm of the market cap of the stock and purchase the 10 most undervalued securities on the first of each month until they were no longer in the top 50. I think he should have done more research on the risk characteristics of his strategies. He claims the model was built in the 70's, and this would have been around 2005. Today, I'm pretty sure no one would invest in SENBX if you put a gun to their head. (Have a look at the chart if you want to see what a quant with a CFA can still do to a fund in an attempt to have a reasonable basis as backup for losing 75%).
Really at that time I thought his model worked, but through the brokers at the then Hilliard Lyons branch in Danville, Kentucky, they mentioned a spat in the 80's where large positions in companies proved to be worthless investments some months after buying into them. I think that would have been the time in the mid 80's to examine the true validity of the model.
Now, I would say that the pairs model is working, and I'm really just experimenting with the Jack Hershey Cash Cow model. I doubt that would stop anybody from subscribing when it goes up 30% in a month at some point. It has hardly traded at all since March. Primarily because having .SPX volume at the 15 minute interval above 20,000 rarely happens past 10 AM EST. The volume filter is the reason it works, and I've seen ancient threads with snippets mentioning that 20,000 level with some basis.
I use the life insurance license to sell Allianz Fixed Indexed Annuities. We have a local financial advisor named Don Whales with his own radio talk show called "Capitalist Pigs" that constantly talks about these products. Really there isn't any other company you should consider buying fixed indexed annuities from, but occasionally there will be some that are just as competitive as the norm of Allianz. I'm usually aware of it as an agent through Crump Life Insurance with every insurer in the country at my disposal.
I spent today contemplating selling to open QQQQ puts and calls with position sizes in accordance with the delta of the option. I might do it, might not. I have put off options, though I have the privelege, because the liquidity in QID and QLD itself has greatly improved since moving to NYSE-ARCA.
My internship at KY Trust Company was coupled with research on the vast changes in NYSE and NASDAQ rules of equities market making. No, duh, a lot of their profits went to nothing after decimalization came. The allure of a day trader at the time, and I do have the book Day Trade Online, was all about splitting the nickel spread with the market maker. Now that spreads are a penny, this sort of riskless trade is not available but on the most illiquid of securities, and trades take place much to quick for this be any edge in any other liquid security. I bought that book around 2002, way after it was even possible, but it reads like a gambling book to me. Excerpts include "I finally hit a home run. Made $3,000 in ten minutes. I turned off the computer, and grabbed the clubs." If only it was that easy. It does include a very cathartic regret of losing 20 g's on citigroup at $93. LOL, I think you're lucky you didn't hold onto it, bud.
So, I think that covers my bio. I played Sousaphone, yeah, the big bell-toned shiny instrument, in marching band for the Boyle County Rebels. That same year I was awarded as a Kentucky Governor's Scholar that required me to stay at a college campus for 5 weeks during Junior and Senior Year of High School. It was great, though, it paid for a $100,000 education at Centre College. We were State Champions in 2001. Prior to relocating to Kentucky, I was in Springfield where I played Competitive Check Hockey. We are still the only Springfield PeeWee Hockey Team to have ever won the Missouri, Illinois league called MOAM.
Well, if you read this far, congrats. Now I'm sure you know a lot more about me, but, it's not anything that you couldn't figure out by googling my name.
Cheers!
Good Trading!
Beau Wolinsky
Ok what am I supposed to be looking for?
I see that your account is 100% other assets. I assume that is cash
Shows no current holdings.
Shows an annualized return of 5.49%, Actual since inception of 2.97%
Valuation of one â$â which indicates a dollar value of between 0 and 50K
Performance has not been anything to brag about. None of the performance graphs show you beating the market.
Granted your annualized return beats the S&P, although the last 3 months have been dismal.
On leverage, that must have an adverse effect when you are down 3.6% for the month.
Just looking for something positive.
The no current holdings is because I have no current holdings, thus why one "$" sign is between 0 to 50. When I do have positions it's "$$." You also didn't follow the request properly. You have to look at cash <i>and</i> equities, because the cash is only based on your allocations and ignores leverage. So if I'm leveraged 1.92:1, that's still 100% in a stock to Covestor, which is all that cash tracks. If you were to look at the leveraged results by clicking the drop down on Cash and Equity you'll get the point. You see where it says something like "BWolinsky Cash"? Click on it to get the drop down for BWolinsky Cash and Equities.
Quote from deaddog:
Now I got it.
So if I'm tracking you I'm not leveraged but you are?
Doesn't leverage work both ways?
The comparison is to an unleveraged S&P is it not?
You can only see the leverage in the Cash and Equities portion, because, as I said, the "Equities only" tracks percentage returns only on allocations. So even if I own 5 times my equity in QLD, I still am only 100% allocated to QLD. So the difference is that you see leverage in the Cash and Equities, but only percentage returns for equities on the stocks themselves.
Which brings me to my next post....
QLD Projection: 56.9035443400289 QLD Close: 52.6699981689453
QLD Projection: 53.7158176075328 QLD Close: 52.6699981689453
QLD Projection: 54.2554285321917 QLD Close: 52.6699981689453
RSQ1: 0.99873149394989
RSQ2: 0.998972177505493
Well, the calulcated values for our QLD projections are essentially a perfect fit with rsquares equivalent to 1 with a little error.
Continuing on the results in Covestor, I finally took the plunge and decided to start using QQQQ Calls and Puts for my directional bets on the NASDAQ 100 Equity Index only for me personally. To do that, I needed a way to calculate an exact position size, and I think everyone should find the enclosed spreadsheet useful for creating synthetically leveraged positions in any security given that you know certain characteristics about the underlying price, excercise price, interest rate, expiry date, security volatility (think 90 days is fine), and the dividend rate, which is inconsequential in our excercise on the Q's.
I have enclosed a basic spreadsheet of how I derive my position sizes in options. Holding to the fact that at 192% of equity, I am sythetically leveraged 4 to 1 on the index, basically, the missing factor in calculating the number of option contracts to purchase is dependent on the delta of the option. Using 90 day volatility as the volatility benchmark, and a basic option pricing calculator from www.otrader.com.au, I input the underyling's security price of 42.99, strike price of 43, interest rate around 0.5% but really 0, expiration date of 11/21/2009, underlying volatility as 2.5468 and a nearly infintesimally low dividend rate of 0.0408. I can use the black scholes or binomial model using any amount of steps. Both based on the Call Price of 1.02, which I bought at the very end of the day but more on that later, the put price closed at 1.01. The Black-Scholes Derived delta for the call was 0.3414 and the delta for the put was -0.6557.
Compiling all this together, you can take the spreadsheet and create your synethic options positions with much less capital than a typical stock would require. Right now I have a hypoethical $100,00 portfolio in the sheet assuming you desire to make a leverage factor of 5 with.
Ceteris Paribus, then, your ideal number of options that will allow you to perfectly replicate a 5 to 1 leveraged position on the underlying is exactly equivalent to:
(Portfolio Size*Leverage Factor)/(Delta of the Option Times the Current Security Price of the Option Times 100).
The reason for this is because delta, even as it is stated in the spreadsheet, will tell you at any given time the option you own will be exactly equivalent to owning 0.3414 times 100 shares of the underlying in the case of the call, or 0.6557 times -100 shares of the underlying for the put for every option contract.
The same logic would be applicable to futures position sizing for large portfolios.
I did not take any significantly large position in the options tonight, but by tomorrow, one way or the other, covestor will consider that as 100% of my portfolio, so even though the option is insignificantly large, if it's down 8% on the open, which I'm pretty sure will happen, well, in the equities section it will show that as my performance being down 8%, but it's not accurate. Don't be fooled. As I hope this exchange and explanation has helped, the matter of leverage seen through my Cash <i>and</i>Equities performance is more representative of what I've done.
Anyway, that said, I've never actually seen this explained on the internet. I was only able to put the puzzle together at Level II of the CFA curicullum where I actually learned how to use the greeks, and I guess you can probably add Vega and Gamma for even more accuracy, but in practice it won't really affect your hedges or the amount of options you buy as you'll be rounding up to the nearest whole integer.
So, I'm long the $43 QQQQ Calls expiring November 21st, and I still anticipate taking a large position in QLD. I'm finding that options, at least on the Q's, have greater liquidity, certainly much better liquidity than the QLD and QID options that nearly always have ten to five cent spreads even when the market is open, worse during the open, too.
That'll put it in perspective for a lot of people. I hope people like and use the spreadsheet. It's not that complicated. Put in a security price, delta, portfolio size, desired leverage factor, and boom, you'll get the amount of options it would take to create that synthetic portfolio with a fraction of the amount of capital rather than outright purchase of the underlying. These positions should stay pretty consistent for at least the next three to four days, but after that rebalancing because of the time to expiration premium will be required. You could even say it's required on a daily basis, but my trades should only last at the most 2 weeks. For much larger positions and longer horizons leaps are available, and using this spreadsheet as a guide I think will help.
Understanding that leverage doesn't have to be greater than 1 is equivalent to attmepting to create a synthetic portfolio of the underlying with a fraction of the amount of capital required. So, if you want to look at how to build a portfolio out of Google that is forty percent of your portfolio with the $500 strike March 2010 Options, be it by selling put options, or buying call options, the answer I get by using 90 day volatility in GOOG, an interest rate of 0.5%, expiry of the option, Underlying at 554.21, portfolio size at $100,000 and a leverage factor equivalent to 0.4 meaning 40% of our portfolio, you would either have to sell 1.02 rounded to 2 put options, or 2.438338 rounded to 3 call options to create your position in google.
I don't believe it takes advanced software to calculate greeks. It really doesn't, and I've not actually seen a case where the theoretical value of the option actually calculates a legitimate value. The free software at the link above is perfectly capable of calculating a delta, which is essentially all you need to know to build a portfolio of options with.
I do not endorse or recommend any of these transactions for anyone. They were only examples of how to create a synthetically leveraged portfolio of any position size or percent of equity.
So, I think that helps. There's a lot more to options than a gambling casino as I've seen them used on the site. They serve a great purpose for creating and hedging these kind of positions.
QLD Projection: 53.7158176075328 QLD Close: 52.6699981689453
QLD Projection: 54.2554285321917 QLD Close: 52.6699981689453
RSQ1: 0.99873149394989
RSQ2: 0.998972177505493
Well, the calulcated values for our QLD projections are essentially a perfect fit with rsquares equivalent to 1 with a little error.
Continuing on the results in Covestor, I finally took the plunge and decided to start using QQQQ Calls and Puts for my directional bets on the NASDAQ 100 Equity Index only for me personally. To do that, I needed a way to calculate an exact position size, and I think everyone should find the enclosed spreadsheet useful for creating synthetically leveraged positions in any security given that you know certain characteristics about the underlying price, excercise price, interest rate, expiry date, security volatility (think 90 days is fine), and the dividend rate, which is inconsequential in our excercise on the Q's.
I have enclosed a basic spreadsheet of how I derive my position sizes in options. Holding to the fact that at 192% of equity, I am sythetically leveraged 4 to 1 on the index, basically, the missing factor in calculating the number of option contracts to purchase is dependent on the delta of the option. Using 90 day volatility as the volatility benchmark, and a basic option pricing calculator from www.otrader.com.au, I input the underyling's security price of 42.99, strike price of 43, interest rate around 0.5% but really 0, expiration date of 11/21/2009, underlying volatility as 2.5468 and a nearly infintesimally low dividend rate of 0.0408. I can use the black scholes or binomial model using any amount of steps. Both based on the Call Price of 1.02, which I bought at the very end of the day but more on that later, the put price closed at 1.01. The Black-Scholes Derived delta for the call was 0.3414 and the delta for the put was -0.6557.
Compiling all this together, you can take the spreadsheet and create your synethic options positions with much less capital than a typical stock would require. Right now I have a hypoethical $100,00 portfolio in the sheet assuming you desire to make a leverage factor of 5 with.
Ceteris Paribus, then, your ideal number of options that will allow you to perfectly replicate a 5 to 1 leveraged position on the underlying is exactly equivalent to:
(Portfolio Size*Leverage Factor)/(Delta of the Option Times the Current Security Price of the Option Times 100).
The reason for this is because delta, even as it is stated in the spreadsheet, will tell you at any given time the option you own will be exactly equivalent to owning 0.3414 times 100 shares of the underlying in the case of the call, or 0.6557 times -100 shares of the underlying for the put for every option contract.
The same logic would be applicable to futures position sizing for large portfolios.
I did not take any significantly large position in the options tonight, but by tomorrow, one way or the other, covestor will consider that as 100% of my portfolio, so even though the option is insignificantly large, if it's down 8% on the open, which I'm pretty sure will happen, well, in the equities section it will show that as my performance being down 8%, but it's not accurate. Don't be fooled. As I hope this exchange and explanation has helped, the matter of leverage seen through my Cash <i>and</i>Equities performance is more representative of what I've done.
Anyway, that said, I've never actually seen this explained on the internet. I was only able to put the puzzle together at Level II of the CFA curicullum where I actually learned how to use the greeks, and I guess you can probably add Vega and Gamma for even more accuracy, but in practice it won't really affect your hedges or the amount of options you buy as you'll be rounding up to the nearest whole integer.
So, I'm long the $43 QQQQ Calls expiring November 21st, and I still anticipate taking a large position in QLD. I'm finding that options, at least on the Q's, have greater liquidity, certainly much better liquidity than the QLD and QID options that nearly always have ten to five cent spreads even when the market is open, worse during the open, too.
That'll put it in perspective for a lot of people. I hope people like and use the spreadsheet. It's not that complicated. Put in a security price, delta, portfolio size, desired leverage factor, and boom, you'll get the amount of options it would take to create that synthetic portfolio with a fraction of the amount of capital rather than outright purchase of the underlying. These positions should stay pretty consistent for at least the next three to four days, but after that rebalancing because of the time to expiration premium will be required. You could even say it's required on a daily basis, but my trades should only last at the most 2 weeks. For much larger positions and longer horizons leaps are available, and using this spreadsheet as a guide I think will help.
Understanding that leverage doesn't have to be greater than 1 is equivalent to attmepting to create a synthetic portfolio of the underlying with a fraction of the amount of capital required. So, if you want to look at how to build a portfolio out of Google that is forty percent of your portfolio with the $500 strike March 2010 Options, be it by selling put options, or buying call options, the answer I get by using 90 day volatility in GOOG, an interest rate of 0.5%, expiry of the option, Underlying at 554.21, portfolio size at $100,000 and a leverage factor equivalent to 0.4 meaning 40% of our portfolio, you would either have to sell 1.02 rounded to 2 put options, or 2.438338 rounded to 3 call options to create your position in google.
I don't believe it takes advanced software to calculate greeks. It really doesn't, and I've not actually seen a case where the theoretical value of the option actually calculates a legitimate value. The free software at the link above is perfectly capable of calculating a delta, which is essentially all you need to know to build a portfolio of options with.
I do not endorse or recommend any of these transactions for anyone. They were only examples of how to create a synthetically leveraged portfolio of any position size or percent of equity.
So, I think that helps. There's a lot more to options than a gambling casino as I've seen them used on the site. They serve a great purpose for creating and hedging these kind of positions.
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