Interest is definitely the pitfall right there, enormous interest charges. I'm thinking maybe just buying ITM calls every month that it signals to be long and just rolling over to the next month every expiration. Anyone see any pitfalls in that strategy of buying in the money calls every month that you are bullish?
Implications of holding futures long term
- Thread starter drukes1234
- Start date
Interest is definitely the pitfall right there, enormous interest charges. I'm thinking maybe just buying ITM calls every month that it signals to be long and just rolling over to the next month every expiration. Anyone see any pitfalls in that strategy of buying in the money calls every month that you are bullish?
Theta is like usurious interest when holding options long term. You can somewhat offset it by selling OTM strikes against your long ITM position, but theta will still tend to eat you alive.
AM.
AM.
This is proving more difficult than I had originally thought, any suggestions for the best way to use a lot of leverage long term?
You may be back to where you started. Since you said your stop-orders would be "tight", you have to expect that you will be stopped out of many positions meaning that your average holding period will be relatively short. Any big trends that you catch can be rolled into the next contract month. A long-term trade will actually be a combination of shorter-term trades.
Quote from nazzdack:
You may be back to where you started. Since you said your stop-orders would be "tight", you have to expect that you will be stopped out of many positions meaning that your average holding period will be relatively short. Any big trends that you catch can be rolled into the next contract month. A long-term trade will actually be a combination of shorter-term trades.
Yes exactly, I will make money maybe 50% of the time but my winners will be far greater than my losers (at least I hope!!!) but someone here brought up the point of interest charges. When a trade turns out to be a winner I will be holding on for on average 6 months.. will the interest charges will be close to 30% over that time if I keep rolling over?
Thanks
After looking @ all the alternatives I think my original thought still makes the most sense. My losses will be very quick if they happen so the interest charges will be marginal. If the trade isn't stopped out quickly and it's a large winner then if the trade lasts 6 months and 3% comes off my performance then so be it.
There was recently a similar discussion in the following thread that you may want to take a look at:
http://www.elitetrader.com/vb/showthread.php?threadid=183887
Note: equity futures are "always" in contango
If you buy at price x and sell at price x + y within the same contract (3 months), interest won't matter because you'll be paying 10 times the monthly interest, but also be making 10 times the market's gain. Think: would you prefer a 15% profit over 3 months without paying any interest or 150%-15% = 135% profit, even if you're paying 10 x 6% annual interest rate over three months (ok, I know I'm simplifying way too much here and I haven't run the exact numbers, but you get the idea).
If you buy at price x and sell at price x - y... well, there you go.
If you roll your position the above holds just the same, only that the gap in price (the contango) will make you feel cheated and like an idiot every time you roll, but just go over a daily chart and pick some bottom and top over 6-12 months and run the numbers. See if you care about the interest.
Note: this is particularly true now because of historically low rates. If rates were 15%, it'd be a completely different story because you could close your position at x + y and still lose money (when compared to simply putting your money in a certificate of deposit at the prevailing rate).
http://www.elitetrader.com/vb/showthread.php?threadid=183887
Note: equity futures are "always" in contango
If you buy at price x and sell at price x + y within the same contract (3 months), interest won't matter because you'll be paying 10 times the monthly interest, but also be making 10 times the market's gain. Think: would you prefer a 15% profit over 3 months without paying any interest or 150%-15% = 135% profit, even if you're paying 10 x 6% annual interest rate over three months (ok, I know I'm simplifying way too much here and I haven't run the exact numbers, but you get the idea).
If you buy at price x and sell at price x - y... well, there you go.
If you roll your position the above holds just the same, only that the gap in price (the contango) will make you feel cheated and like an idiot every time you roll, but just go over a daily chart and pick some bottom and top over 6-12 months and run the numbers. See if you care about the interest.
Note: this is particularly true now because of historically low rates. If rates were 15%, it'd be a completely different story because you could close your position at x + y and still lose money (when compared to simply putting your money in a certificate of deposit at the prevailing rate).
Yes, assumed they tightened up by rollover time though. That's why I'm asking these questions.. I have never traded futures over a long period of time that would require a rollover so I created this thread.